THE LMPACT OF FREE TRADE ON EMPLOYMENT AND WAGES IN THE CANADIAN SERVICE SECTOR, 1987-1998

by

Yannine Watts

A Thesis Submitted to the Coliege of Graduate Studies and Research througb Political Science in Partial Fulfillment of the Requirements for the Degree of Master of Arts at the University of Windsor

Windsor, Ontario, Canada

1999

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The author retains ownership of the L'auteur conserve la propriété du copyright in this thesis. Neither the droit d'auteur qui protège cette thèse. thesis nor substantial extracts fiom it Ni la thèse ni des extraits substantiels may be printed or othenvise de celle-ci ne doivent être imprimés reproduced without the author's ou autrement reproduits sans son permission. autorisation. ABSTRACT

On January 1, 1989, the Canada4I.S. Free Trade Agreement (FTA) was

implemented. In the pre fiee trade era, there were countless debates engaged in by

Canadians about the tùture of jobs and wages as a result of the agreement. In 1994, the

North Arnencan Free Trade Agreement (NAFTA) went into effect. The defining characteristic of NAFTA was the modikng of the FTA agreement to accommodate

Mexico. With the implernentation of this agreement, Canadians continued to hold heated debates about jobs and the issue of wages becarne more prominent. Wages were a pertinent issue in the NAFTA debate because many Canadians feared that they would have to compete with Iowa Mexican worker wage levels. Throughout the fiee trade debate, proponents of fiee trade maintained that there would be significant job and wage increases, while opponents of fke trade feared job and wage demeases. This thesis examines specifically the impacts on Canadian service sector jobs and wages during the implementation of the FTA and NAFTA. Afier examining ernployment and wage level data in the period 1987- 1998, it was concluded that the Canadian senice sector was not negatively affected as a resuIt of fiee trade as many opponents of fkee trade maintained, nor did it benefit as greatly as proponents argued. TABLE OF CONTENTS

.. - ABSTRACT 111

LIST OF TABLES v-vi

CK4PTER

1. LITERATURE REVIEW ON THE FREE TRADE DEBATE

II. A REVIEW OF STUDIES mASCTRING THE IMPACTS OF THE FREE TRADE AGREEMENT ON CANADA

III. METHODOLOGY

IV. FREE TRADE DATA AND ANALYSES

v. DlSCUSSION

REFERENCES

VITA AUCTORIS LIST OF TABLES

Table #la Annual Employment Levels in the Senice Sector, Non-trrrdeable sector Retail Trade and Wholesale Trade: 1987-1998* (in 1000s) 60

Tsrbie #I b Percentage Changes in Annual Employment Levels in the Service Sector, Non-trader ble sector Retail Trade and Wholesale Trade: Pre-1989 to present

Table #2a Annual Average Weekly Wage Earnings in the Service Sector, Non-traderble sector Retail Trade and Wholesale Trade: 1987-1997 (Canadirrn doIIam)

Table #2 b Percentage Changes in Annual Average Weekl y Wage Earnings in the Service Sector, Non-trrideable sector Retail Trade and Wholesale Trade: Pre-1989 to present

Table #3a Annuai Employment Levels in the Service Sector, Import competing sector Transportation and Warehousing and Information and Culture industries: 1987-1998 * fin 1000s)

Table #3b Percentage Changes in Annual Empioyment Levels in the Service Sector, Lmport competing sector Transportation and Warehousing and Information and Culture industries: Pre-1989 to present

Table #4a Annual Average Weekly Wage Earnïngs in the Service Sector, Import competing sector Transportation and Storage and Computer and Related Services: 1987-1997 (Canadian dollars)

Table Mb Percentage Changes in Annual Average Weekly Wage Eamings in the Senice Sector, Irnport competing sector Tmsportation and Storage and Computer and Related Services: Pre- 1989 to present

Table #Sa Annual Employment Levels in the Service Sector, Export-oriented sector Professional, Scientific and Technical Services: 1987-1998 * (in 1000s)

Table #5b Percentage Changes in Annuai Empioyment Levels in the Service Sector, Export-oriented sector Pro fessional, Scientific and Technical Senices: Pre-1989 to present LIST OF TABLES

Table #6a Annuai Average Weekly Wage Earnings in the Service Sector, Ex port-oriented sector Architecture, Engineering and 0th- Scientific and Technical Services: 1987-1997 (Canadian dollars)

Table #6b Percentage Changes in Annual Average Weekly Wage Eamings in the Service Sector, Export-orieated sector Architecture, Engineering and 0thScientific and Technical Services: Pre-1989 to present Chapter 1

Literature Review on the Free Trade Debate

Introduction

When Canadian Prime Minister Bnan Mulroney and U.S. President Ronald

Reagan signed the Canada4.S. Free Trade Agreement (FTA) in January 1988, they put their seal of approval on over two years of trade negotiations. They dso kicked off an enormous poIitica1 debate that pitted fiee trade proponents against opponents who called the FTA the end of Canada's economic sovereignty. Regardless of this debate, however, on January 1, 1989 the Cmada-U.S. Free Trade Agreement was implemented. The

Canada-US Free Trade Agreement eliminated tariffs and sought to reduce the impact of non-tari ff barriers (Barker & Charlton 1994, 5 14). In the ten years over which the FTA was to be phased in, Canada was expected to adjust to a new business and economic environrnent (Gandhi 1990,435).

During the pre and post fiee trade eras there have been countless arguments made by both proponents and opponents of fiee trade regarding the costs and benefits of this deal. After the U.S. and Canadian governrnents announced in October 1987 that they had successfûlly negotiated a comprehensive bilateral free trade agreement, the full details of the agreement were made public in Decernber. Throughout 1987 and 1988, several labor unions, political parries and interest groups did their own analyses of the benefits and costs of the FTA. Proponents and opponents held heated debates around such matters as the future of Canadian jobs, incornes and wages. Throughout the free trade era, 1 proponents and opponents of the FTA made several contradictory predictions, which only showed that there was a definite lack of consensus about the implications of the agreement.

In the period immediately following the signing of the agreement, hopes and fears about the significance of the agreement aroused intense emotions as Canadians struggled to corne to grips with wildly conflicting interpretations of the possible impacts of the

FTA. After two years of intense debate on the FTA, Canadians continued to voice their opinions when the North Amencan Free Trade Agreement (NAFTA) was proposed and implemented. The defining characteristic of NAFTA was that it extended and clarified provisions within the FTA, modiwng the existing agreement to accommodate Mexico

(Merrett 1996, 278). NAFTA was signed on August 12, 1992 and was implernented in

January 1994. In the debate over NAFTA, many opponents relied upon the sarne arguments that were used in the FTA debate. Above dl, many feared Canadian jobs would be lost and Canadian wages would decline. Both agreements, then, generated a great deal of controversy before they were signed and they continue to generate controversy to this day.

It is important to note that throughout both the FTA and NAFTA debates, opponents and proponents continued to make widely conflicting predictions about the overall impacts that would be generated by the agreements. There was a definite lack of agreement among the various political parties, interest groups, lobbyists, labor unions and think-tanks. Every group did its own andysis of the benefits -- or costs -- of fiee trade.

Throughout the political debate, issues such as the future of Canadian jobs and wages continued to be unresolved. Everyone said something different; some predictions were

positive, while others were negative.

In light of this continued political debate and lack of consensus on the impacts of

fiee trade, the actual effects of fiee trade need to be examined more thoroughiy. This thesis focuses on the possible effects on jobs and wages during the fiee trade era. Over the past ten years, there have been a number of conflicting arguments about the effects on jobs and wages generaily and more specifically in the service sector during the implernentation of the FTA and NAFTA. Specific data on jobs and wages during the

FTA and NAFTA periods will be used to deterrnine whether proponents and opponents of free trade were accurate in their predictions and studies.

1. The Free Trade Debate in Canada

"For Canada, the subject of fkee trade with the United States is," as one historian says. "the issue that will not go away" (Barker & Charlton 1994, 514). The FTA has caused much political debate. in general, Conservatives, business, executives and economists have been proponents of free trade, while Liberals, New Dernocrats and labor leaders have been opponents. Overall, the main argument of proponents of the FTA was that free trade was vital for Canada's future economic prosperity. In contrast, opponents believed that Canadians would gain little in the way of increased economic opportunities

(Brooks 1998, 1 15-1 16).

According to several sources, the service sector was predicted to be one of the major sectors affectai as a result of the FTA. FTA proponents and opponents held heated debates about free trade's effects on the services industry. Why was the senrice sector so 3 important? Since 198 1, over 70% of al1 Canadian jobs have been in the service industry.

This industry has continuai to be by far the largest component of Canada's economy in terms of employment and gros domestic product, providing a livelihood for three out of

four employed Canadians (Ministty of Treasury & Economics 1986, 1-3). Proponents of the FTA argued that most of the new jobs that were to be created by the agreement would be in the service industry. Furthemore, they maintained that four service industries- retaiI and whoIesaIe trade and commercial, personal and business services would account for 65% of new jobs created in the entire economy by tiee trade - as many as 225,000 jobs (Department of External Affairs 1988b). Overail, proponents argued that the net-job creation effect of the FTA would be positive and most certainly, that service jobs were not at nsk.

To the contrary9 opponents of tiee trade argued that Canada-U.S. free trade in services could be seriously disadvantageous for Canadians. According to opponents, at

Ieast five industries would be exposed to increased foreign cornpetition without the prospect of sufficient compensating benefits in the U.S.: banking; culture and broadcasting; investment dealers; telecornmunications and transportation. According to opponents, only one industry group - business services - stood to gain significantly fiom increased access to the U.S. market and, even within this group, it was estimated that some industries would lose while others would gain.

II. General arguments te: Job losses/gains

The arguments made by proponents and opponents of 6ee trade stating that jobs would be gained or lost as a result of the FTA were among the most important arguments 4 surrounding the "Great Free Trade Debate." Most Liberals, New Democrats and

mernbers of Iabor had a difficult time believing jobs would increase and believed instead

that the FTA would lead to severe job Iosses. Conservatives, business and executives on

the other hand, believed that jobs would be gained and the economy would be

strengthened.

As early as 1986, proponents of the FTA set forth their arguments about the

impact on jobs as a result of the agreement. In June 1986, Milton Hanis, Chairman of

Harris Steel Group, Inc., Toronto argued that Canadian jobs would wither away without

free trade. During a speech given in Montreal at the annual meeting of the Canadian

Institute of Steel Construction. Harris argued that about 75% of Canadian industry was

consistently shown to be in favor of fiee trade with the U.S. These associations included:

Canadian Manufactwers' Association, the Canadian Chamber of Commerce and the

72,0001 member Canadian Federation of Independent Business. Harris maintained that the success of his business would be considerably enhanceci by a fkee trade agreement with the U.S. He also asserted that, given adequate time for adjustment, Canadian

industry would fare very well in a North Arnerican cornpetitive economy. Hams argued

that most of the opponents of £iee trade were living in a world divorced from the redis. of global trading conditions and particularly from the reality of the political environment

in the U.S. (Harris June 28, 1986, 8).

Prime Minister Bnan Mulroney was also a staunch supporter of fiee trade. In

December 1986, he argued that free trade was the only road to new jobs. He maintained

that the next 500,000 jobs would result fiom free trade. The Prime Minister played down any negative impacts on the trade talks. in an interview with CBC television, he stated

that "1 am ready to take the risks and sacrifices necessary to foster fier trade because I

know there is no other way of significantly boosting Canadian ernployrnent" (Howard

December 20, 1986, A I ).

Statements by federal cabinet members did not seem to support Mulroney's

optimism, however. In 1987, Federal Employrnent Minister Benoit Bouchard argued that

half a million Canadians could lose their jobs during the decade in which a free trade

treaty with the United States was to be implemented. "Job losses could be over 500,000, but it could be below," he told reporters. Bouchard said his estimates were based on the

most pessimistic scenario covering the 10 years - 1989 through 1999 - dunng which tariffs were to be phased out between Canada and the United States (Toronto Star

October 8, 1987, A 1).

Patrick Lavelle, Federal Deputy Minister of industry, Trade and Technology also

made a gloomy forecast in October of 1987 when the Ontario govenunent opened its public bearings, which focused on the trade deai's impact on the province. He asserted,

"about 400,000 Ontario jobs are minerable under the free trade deal between the United

States and Canada." Lavelle maintained that the major impact of tiee trade would be on

bits and vegetables, clothing, footwear, textiles, fûmiture, major appliances and scientific and professional equipment (Walker October 14, 1987, A 1).

Ontario's position opposing the deal was outlined in opening rernarks to the hearings made by David Kwinter, chaiman of the panel of provincial cabinet members conducting the hearings. The other members were Energy Minister Bob Wong, Culture Minister Li1y Monroe, Agriculture Minister Jack Riddell, Labor Minister Greg Sorbara and Consumer Minister Bill Wrye. "We do not feel this is a good deai for Ontarians and by extension, we do not feel it's a good deal for Canadians," Kwinter said (Walker

October 14, 1987, Al, A4).

Members of the textile industry also maintained that jobs in Ontario would be lost as a result of fiee trade. "Free trade with the United States could wipe out 25,000 jobs in

Ontario's clothing industry," textile industry union spokesmen said on October 2 1, 1987 in a bnef to the Ontario Cabinet. "The oniy solution is to cancel the deal and push for further import controls to protect the struggling Canadian industry," the International

Ladies Gaxment Workers Union said in a brief presented to the Cabinet's fiee trade hearings in Toronto. The Union, which had 15,000 members in Canada, including 4,000 in Ontario said, "only a handfil of Canadian clothing manufacturers could compete with

U.S. firms, which are much larger and pay Iower average wages." Moreover, "most

Canadian companies also are too small to make the investments and adjustments required to thrive under fkee trade," said Hermm Stewart, business manager of the Union's

Ontario district council (Globe & Mail October 22, 1987, A4).

AAer 1987, the f?ee trade debate became more heated as the date for the signing and implernentation of the agreement neared. Throughout 1988, several arguments about the effects on jobs were set forth by both proponents and opponents of fiee trade. In

1988, John Ferguson, a prominent Canadian joumalist, argued that it was time for Bnan

Mulroney and the rest of his government to corne clean with the Canadian public and admit what everyone knew to be the truth: the fact that a lot of people were going to Iose their jobs because of free trade. He statd, "so far the Prime Minister has only talked

about the positive side of ûee trade - the jobs that will be created as companies expand

and take advantage of their new access to the huge U.S. market." Ferguson noted that

Mulroney managed to deliver a one-hour speech in the Commons during the fiee trade

debate just before Christmas 1987 without even mentioning job losses or what the

governent would do to help those who did lose their jobs. Ferguson maintained that

opposition critics harped away at it, "but al1 we got from Mulroney was the bright side:

thousands of new jobs at home in Canada and stimulating and enriching jobs from his

win-win situation" (Ferguson Jmuq 5, 1988, Ag). According to Ferguson, what

Mulroney and his government said was only half the ûuth.

Sure there will be job gains, but how many job losses will there be? Just how many jobs are likely to be lost is being treated as a cabinet secret by the No and on Creovernment. doubt Mulroney his advisers are playing footsy this one because they worry that anti-fkee trade forces will seize on any concession about job loss and use it as ammunition against the deal (Ferguson January 5, 1988, AS).

Yet. throughout 2988 many proponents continued to assert that jobs would be

created as a result of fiee trade. Finance Minister Michael Wilson also weighed into the jobs debaîe. "Canada's fiee trade agreement with the United States will create at least

120,000 new jobs over the next five years," the Minister promised. The price tag, he

added, will only be 25,000 "job changes" as industries hit hard by Amencan trade are

forced to adjust. "Twenty-five thousand will lose their job fiom this company, but they

will find their new job with another company," he told reporters. Wilson stressed that the job changes were not significant, given that about four million Canadians change jobs each year. According to Wilson, without the agreement, growing U.S. protectionism

would Iikely lead to the loss of 75,000 jobs in Canada by the mid 1990s (Morton January

15, 1988, Al).

Federal Cabinet Minister Barbara McDougall also asserted that few jobs would be

at risk as a result of fiee trade. "Few Canadian workers - perhaps only 16,000 a year over

10 years - will become unemployed as their firms succumb to intense competition under

the Canada4.S. fiee trade agreement" (Deverell January 26, 1988, B 1 ). McDougall told

a business audience on January 25, 1988 that Canada would not need to expand its

manpower training programs to assist workers who lost their jobs as the trade ded came

into force. According to McDougall, many new jobs would arise fiom expanded trade to

offset the minor job losses that fiee trade would cause. "The labor force adjustrnents

resulting £kom fiee trade will be small relative to the normal fluctuations in a labor

market. which registers one job change per five Canadian workers each year" (Deverell

Januq 26, 1988, B 1).

By contrast, Ken Georgetti, Head of the B.C. Federation of Labor asserted, "it's a

folly to trust the U.S. to create Canadian jobs." He argued that the fiee trade agreement spelled major losses for workers in key sectoa of the provincial economy - a total of

56,730 jobs to be exact. According to Georgetti, British Columbia would be a major

!oser as a result of a free trade agreement. He maintained that there would be losses of up to 80% of current jobs in horticulture and up to 50% of jobs in the poultry and egg industry. Moreover, jobs in vegetable, grape and wine, and sofi hit production would disappear altogether while jobs in the dairy industry would decrease by up to 75%. These figures would add up to 30,350 jobs lost in industries that employ 45,000 people overall.

Georgetti also predicted 6,000 job losses in metal fabrication and machinery (fiom

24,000), 5,000 jobs lost in printing and publishing (fiom 13,000), 3,500 jobs lost in the

transportation equipment industry; 3,000 out of 8,000 jobs lost in the textile and clothing

industry; and 2,720 jobs out of 3,400 lost in the chernical industry. On the other hand,

Georgetti argueci that there would be some short - tmjob increases: as many as 5,500 jobs created in wholesale trade (a non-tradeable sector) and up to 500 new jobs in the real estate sector (Georgetti March 14, 1988, A7).

Several members of the food indushy were also staunch opponents of fkee trade.

Leading members of Canada's food industry argued that the proposai free trade deal wi th the United States would be a disaster and would wipe out more than 150,000 agricultural jobs in the next decade. Members of the food industry who were against the implementation of the agreement included McCain Foods, Hunt-Wesson Foods, the

Ontario and Quebec federations of agricufture and the Nova Scotia Chicken Marketing

Board (CVard September 14, 1988, 1 ).

To the contrary, in an effort to attract supporters of fkee trade during the federal election campaign that year, Prime Minister Mulroney wamed that 2 million jobs could be lost if the trade deal was rejected.' He argued that two million Canadian jobs depended on secure access to the U.S. market. A vote for Mulroney was interpreted as a mandate for the FTA. During the campaign, Mulroney also called Liberal leader John

Turner and New Democrat Ed Broadbent and other opponents of free trade "despicable"

- 1 The Progressive Conservatives won the Nov. 2 1" federal election. 10 for suggesting that Canada's social programs could be at nsk as a result of the trade deal

with the United States (Whittington November 2, 1988, A6).

In December of 1988, only one month before the FTA was implemented, Prime

Minister Mulroney argued that the free-trade deal would lead to a net increase of over

27,000 new jobs per month over the next four years. According to several sources, this

was the first time that Mulroney set a finn forecast of the number of new jobs that would

ernanate fiom the Canada-US. fiee trade deal. In response, Liberal Leader John Turner

said: "Does he not reaiize the workers of Canada Packers, Northern Telecom, Pittsburg

Paints, Cantelli and Gillette have already lost jobs? They can't afford to wait for the

Prime Minister." Mulroney responded by citing some new investrnents, such as a $500

million investment in the alurninum sector in Trois Rivieres that he said would create

hundreds ofjobs (WiIls December 14, 1988, BI).

Another prominent issue in the jobs debate was the assertion made by proponents

and opponents that women wouid either be "job winners" or "job losers" as a result of an

agreement. Clothing manufacturing spokesmen predicted that one-third of their industry could disappear by the end of the proposed trade pact's IO-year phase-in period.

Spokespersons rnaintained that if women were likely to find employment at dl, it would be in service sector jobs such as the dry cleaning industry, possibly part-time and almost certainly at minimum wage. In response, University of Toronto professor John Crispo, a staunch supporter of fiee trade, told Toronto Star reporter Judy Nyman that the assertions made by clothing manufacturing spokesmen '%me not worth the paper they were written on" (Nyrnan November 9,1987, A4). According to Crispo, women in particular had nothing to fear as a result of the implementation of the FTA.

There were several opponents who disagreed with Cnspo's assertions about women and jobs. Louise Dulude, President of the National Action Cornmittee on the

Status of Women, agreed with spokespersons from the clothing manufacturing industry.

She maintained that fiee trade could cost women jobs and hard-fought benefits such as maternity leave. Ms. Dulude told a luncheon meeting in November that the proposed agreement with the United States would cost many jobs in textiles, shoe manufacturing. food processing and the service sector. According to Dulude, "Some would argue these are bad jobs anyway, and will disappear in the long tem, but there are no plans to retrain these women, many of whom are older immigrants" (Montreal Gazette November 16,

1987, A7). In addition, NDP leader Ray Martin said women's jobs would be "cannon fodder" if a free trade deal were to be implernented with the US. The majority of ernployees in industries that would be vulnerable afkr free trade would be women. Many of these women would be least likely to Se retrained or rnoved to other jobs because of their age, educational background, and family commitments (Ramondt December 4,

1987, B3).

III. Service Sector arguments re: Job lossedgains

According to business leaders, senice jobs were not at risk under the FTA. If businesses were able to adjust to the agreement, then the Canadian economy would prosper, maintaining a growing demand for services and for people working in the service industries (Crispo 1988). In contrast, opponents argued that there would be 12 severe job losses as a result of the agreement. They predicted that the overall job loss in the service sector could range fiom 50,000 to one million within the first year of the treaty. They also estimated that small businesses would lose nearly 400,000 jobs.

Opponents rnaintained that Canadians would have an increased reliance on imports of more highly manufactured goods and services. Overall, they argued that Canadians would have too much reliance on imports in the service industry.

Beginning in 1988, proponents and opponents of fiee trade set forth their particular arguments about service sector jobs. "Jobs will be gained, not lost," said

Gordon Gow, Vice-President of Gandalf Technologies and chaiman of the Canadian

Advanced Technology Association. "We're looking at it with a very positive approach because we will be able to get contracts we couldn't get before and this will create more employment opportunities." According to Gow, new contracts meant new jobs for a

Company that had 3 160 million in sales in 1987 and ernployed over 1,500 workers across the country and in the United States and Britain (Soto August 29, 1988, 9). Sunder

Magun, an analyst with the Economic Council of Canada, said the deal was expected to generate 182,000 jobs in services alone. Magun broke dom the number of job gains as follows: transportation and storage 8,800; communications 1,200; utilities 2,000; wholesale trade 15,700; retail trade 59,600; finance inswance and real estate 30,300; business services, including engineering and architectural consultants 20,000; health and education 5,900; amusement and recreation 4,600; food and accommodation 23,600; and persona1 and other services, such as laundry and cleaning. 10,300. Debra Steger, an

Ottawa-based lawyer who specialized in free trade matters was also a staunch proponent of fiee trade. "What we will see with an increasing liberalization of trade in services, is

Canadian fïxms becoming more competitive internationally. As a result, 1 think

employment opportunities will grow in the services area" (Soto August 29, 1988,9).

Bill Loewen, president of Comcheq Services, on the other hand, argued that free

trade would be detrimental to Canada. Loewen was concemed about the fùture of his 350

employees in Winnipeg. "Their jobs are at nsk," he said. "Canada and the U.S. are the

first counmes to make a trade deal involving services and this is very risky" (Soto August

29, 1988, 9). Overall, Loewen was wary of the fierce competition that Canadian firms

could face fkom Americans, both domestically and in the US., the possible takeovers resulting fiom the deal, and the prospect that key service jobs would be pulled out of

Canada and transplanted to head offices in the United States (Soto August 29, 1988,9).

Opponents of the FTA argued that Canadians had to make too many concessions, especially in the service industry. In 1988, Me1 Watkins argued that the list of what

Canada gave up was lengthy.

To an extent unprecedented in existing trading arrangements, îhis agreement opens up the service sector: financial institutions, insurance, advertising, data processing, management services, and the like. The Reagan administration pushed for this concession, believing that comparative advantage in this sector lies with US. companies. The Mulroney government acquiesced, though what littie research has been done on the consequences for Canada indicate that the impact will be adverse (Watkins 1988, 36).

Proponents and opponents also made several arguments about women and jobs in the service sector. Proponents of the FTA argued that most of the new jobs created by the agreement would be in service industries, where female employment was already heavily concentrated. They also pointed out that four-fifths of Canadian women in the 14 labor force were employed in the services sector and that the majority of them were empIoyed in industries refmed to as non-traded services, including education, health care, public administration, and personal and business services. To further support the argument that women in the service industry would be winners as a result of the FTA, proponents pointed to predictions made by the Economic Council of Canada. According to the Council, four service industries - retail and wholesale trade (non-tradeable sectors), and commercial, personal, and business services (tradeable sectors) - would account for

65% of new jobs created in the entire eçonomy by free trade. This could result in as many as 225,000 jobs. Women represented 56% of employrnent in these particular industries. Another important statistic was that Iess than 12% of the Canadian female labor force was employed in the manufachiring sector during the period immediately preceding the FTA, which was where the buIk of trade-induced negative adjustrnent was likely to occur (Crispo 1988, 1 19- 122)-

Jim Hawkes, former chainnan of the Cornons cornmittee on employment and immigration. also argued that Canadian women would benefit from free trade.

Canadian women should be optimistic, not fearfiil, of the proposeci Canada-U.S. free trade deal. The agreement will bring higher-paying management jobs for women in services such as insurance and banking (Ross October 27, 1988, B6).

In response to Hawkes, Isa Baker, a York University political economist argued that the agreement could threaten many women's clerical jobs. She maintained that jobs could be lost as companies processed data in lower-cost countries, such as Mexico, and then imported the finished product to Canada. This was because there was nothing in the deal requiring that senices be produced mainly in Canada (Ross October 27, 1988, B6). 15 Opponents also focused on other evidence that asserted that women in services would be the major losers under the FTA. Opponents maintained that fkee trade in tradeable service industries - such as data processing, finance, insurance, advertising, culture and transportation as importeci services - would replace domestic services. The result would be a major loss of jobs for women in these sectors. (Vohanka 1988, 99- 100 as cited in

Caivert & Cameron 1988).

Maude Barlow, National Director of the Council of Canadians and a staunch opponent of fiee trade in 1986 helped to form a powerful women's coalition against fiee trade. According to Barlow, no one in Canada stood to lose more from the FTA than wornen. She argued that women's ernployment would be hurt by fiee trade. She maintained that the jobs that most people agreed would be sacrificed were in the two areas in which women predominated - manufactunng and service industries. 80% of al1 women workers in Canada are employed in the service industry. Barlow argued that women in this industry would be particularly vulnerable to aggressive Amencan demands that service industries be on the bargaining table.

Indeed, the Canadian Independent Computer Services Association estimates that 250,000 jobs, the majority held by women, have already been lost as a result of the importation of computer services by multinationals operating in Canada, whose Arnerican head offices perform al1 the administrative and personal functions. With free trade in services it would be very difficult to stem this trend by imposing restrictions to protect Canadian workers (Barlow June 3, 1986, A 15).

In addition to arguing that women were losing several jobs in computer services as a result of fiee trade, opponents argued that smalf firms would be hard hit with the implementation of the FTA. At the time of the FTA, small firms accounted for 34% of employment in the sdcesector and 23% of jobs in the goods-producing sector. They argued that small firms would suffer fiom unrestricted cornpetition in the domestic market from their larger and more powerful U.S. counterparts. They said that smaii firms did not have the resources to exploit the US. market and, as a remit, would be vulnerable to takeover by foreign interests, with the nsk of ultimate closure. Opponents predicted that the overall job loss in the service sector could range fiom 500,000 to one million within the first year of the treaty. They estimated that small businesses would lose nearly

400,000 jobs. Opponents sumrned up their feelings with this phrase: "It is ironic that the small finns' which have created the vast majority of employment growth in recent years, should be sacrificed to clinch a deal that can only benefit the larger fims and U.S. branch plants" (Orr 1 988, 19-2 1 as cited in Calvert & Cameron 1988).

W.General arguments re: Wage hcreases and Wage decreases

Throughout the Fee trade debate, tfiere were also several arguments made regarding the impact on wages, although the issue of wages was not as widely debated as the issue of jobs. How would wages be affected afier the implementation of the FTA? Would average real earnings of Canadian workers increase or decrease? Would workers be forced to accept decreasing wages? If wages did increase, who would be the recipients of these wage increases? These were sorne of the important questions posed in the course of the fiee trade debate.

In 1986, Grant Reuber, President of the Bank of Montreal, argued that fiee trade wi th the United States would boost wages. Reuber said that fkee trade would reverse the trend in which Canadians earned less than Americans. "Substantially Eree trade with the 17 United States will increase Canada's national income by at least 5%," Reuber asserted

(Gibbon September 16, 1986, D3).

In 1988, members of the Institute for Policy Analysis at the University of Toronto also concluded that the implementation of the fiee trade agreement would result in permanent gains in income for Canadians. They argueci that by 2001, wages in Canada would be 4.5% higher in reai terms than they would be if the agreement were not implemented (Rusk November 14, 1988, B2). After this initial prediction about wages in

1988. other predictions came much iater and the debate focused on how wages would be impacted with the implementation of NAFTA, which added Mexico to the fiee trade agreement in 1 994.

It is important to note that wages were a more prominent issue in the NAFTA debate rather than the FTA debate. With the implementation of NAFTA, many

Canadians feared that they would be unable to compte with lower Mexican wages.

Given the extraordinary gap between Canadian and Mexican wages, many Canadian companies considered investing in Mexico. Given this situation, many Canadian workers felt that their wages would be vulnerable with NAFTA in place (Campbell 1993, 17- 18).

Opponents of NAFTA argued that there would be significant wage decreases as a result of the agreement. Leo Gerard, Ontario Director of the United Steelworkers of

America, argued in 1991 that as bot. the United States and Canada pondered a fiee trade agreement with Mexico, the entire North American economy was in danger of becoming a low-wage economy. "It will mean a drive to lower competitive costs to compete with

Mexico" (Stinson March 26, 199 1, BS). Several members of the NDP also agreed with Gerard's conclusions. In 1991 the NDP argued that Canadian workers roughly earned in an hou what their Mexican counterparts earned in a day. The party maintained that

Canada should not enter into a trilateral free trade agreement with the U.S. and Mexico because low-ski11 manufacturing jobs would head for the cheap labor region (Globe &

Mail April 12, 199 1, B5).

To the contrary in 199 1, Canadian forestry cornpanies argued that many of its' workers had nothing to fear, Public relations manager Barry Lacter, of Louisiana Pacific, did assert that Iowa wages were a part of the incentive to move to Mexico, but he said it was not the only one. Lacter said that if the Company was successful, it would not take advantage of cheap labor rates in Mexico. "Even with a trilateral fiee trade deal,

Canadian forestry companies have no plans to change theu Canadian operations or lower worker wages" (Bramharn November 9, 199 1, D2).

Many people argued that Canadians had no reason to fear wage cornpetition with the implernentation of NAFTA. Surpnsingly, Audrey McLaughlin. leader of the federal

New Dernocratic Parîy maintained that comparing Canadian and Mexican labor wages told us nothing. (The majority of NDP members were staunch opponents of free trade).

Even if al1 other costs were quai, which they are not, it is not wages that are the true cost of labor, but wages per unit of output: if Mexican workers are paid only one-tenth as much as Canadian workers, but are only one-tenth as productive, they are no further ahead (Globe & Mail Aupst 14, 1992, A 12).

V. Service Sector arguments re: Wage increases and Wage decreases

In the fiee trade debate, there were not many arguments which focused on wages in the service sector. As earlier stated, the main concern that proponents and opponents of fiee trade had with the service sector was job losses and job gains. There is, however 19 some important general information about the service sector that is helpful in terms of providing a basic understanding of service sector wages and its pertinence to this thesis.

On average, service sector jobs pay far les than average than a job in the goods- producing sector or in manufachinng. In 1988: the average Canadian worker in the goods-producing sector earned CanS3.73 more per hour than a service sector employee.

By 1994. that gap had expanded to Can.%4.21 per hour (Merrett 1994, 170). Workers in the seMce sector include highly-paid lawyers, accountants, data managers, computer programrnets, engineers and ewnomic forecasters. However, a much farger proportion of the service sector is compnsed of underpaid workers such as retail sales clerks, data entry computer operators, office clerical staff, food service and accommodations staff, and other members of the distribution network who deliver manufactureci goods to the market (Merrett 1994, 170).

Ken Georgetti, argued that wages in the senice industry would suffer as a result of fiee trade. To cite one example, Georgetti refers to the construction indusûy (which is a sub-sector within the service sector) as a major loser in ternis of wages. In the construction industry, "we see a negative impact in terms of increased cornpetition which will depress wages and working conditions which will translate into the supply sector and the retail sector." In particular, Georgetti was concerned that B.C. employers would start demanding reduced wages and benefits to compete with the U.S. (Georgetti March 14,

1985, A7).

Lester Thurow, a U.S. economist made an interesting argument about service sector wages. He argued that NAFTA would not send Canadian and Arnencan jobs to Mexico. Rather it was more likely to bnng Mexican wage levels to both countries.

"Very few jobs will go to Mexico tiom Canada and the United States, but there will be enormous pressure on wages in the bottom third of the market. We're producing a Third

World wage centre in the middle of First World countries." He maintained that NAFTA should be accompanied by a massive program to re-educate and retrain employees within various low-paying industries of the service sector. Othenvise he said, "if you've got

Third World skills, you'll make a Third World wage" (Thompson Seprember 26, 1992,

D 1).

Summary of Free Trade Arguments

"The FTA was one of the most significant policy initiatives in the life of the

Canadian nation, and Canadians had to look deeply into their national sou1 to decide where they would stand on the issue" (Dom & Tomlin 1991, 2). Proponents and opponents of fiee trade had much to Say about how free trade would affect jobs and wages. In particular, job losses and job gains, and wage increases and wage decreases provided the focus for the political debate.

The main focus of the pre-fkee trade political debate was on jobs. Brian Mulroney and his Conservatives predicted significant job increases as a result of the agreement.

Throughout the 1988 election carnpaign. Conservatives and members of business continued to be staunch supporters of the agreement and were çonvinced that the overall effects of free trade would be positive. Opponents continued to fear job losses as a result of the agreement, but opponents lost their battle and the agreement was implemented on As earlier stated, afier the implernentation of MA in 1989, NAFTA was implernented in 1994, which added Mexico to the agreement. Proponents and opponents continued to focus on the same issues, yet both had more to Say about the impact on wages. Several opponents feared that many Canadian workers would have to compete with Mexican workers who were paid with much Iower wages. Many also feared that several Canadian companies would move to Mexico so they could pay Mexican workers significantIy lower wages to do the same types of work. Proponents argued that

Canadians workers had notliing to fear and wages would rernain the sarne. The lack of consensus regarding the predicted impacts was significant.

The main concem that proponents and opponents of tiee trade had with the service sector were the potential effects that fiee trade would have on jobs. Many proponents argued that the service sector would see a significant increase in jobs, while proponents argued that there would be severe decreases. Opponents argued that many service sector jobs would be lost, and in particular women were going to be the "big losers." On the other hand, proponents argued rhat women would see significant job gains in several service sector industries, such as insurance and banking, where jobs were high-paying. In the pre-fiee trade debate, the issue of semice sector wages was not as widely debated as the issue of jobs. The issue of wages becarne a more contentious issue with the proposa1 and implernentation of NAFTA. Conclusions

This chapter has provided an overview of the general arguments and in particular the service sector arguments made by both proponents and opponents of fiee trade. AAer reviewing the arguments made by both sides, it is evident that there was a definite lack of consensus. Chapter 2 will provide an ove~ewof studies that have attempted to measure both the predicted and the actual impacts, including the impacts on the service sector dunng the implementation of the FTA and NAFTA. Although there exists a similar lack of consensus, none of these studies have attempted in particular to correlate changes in jobs and wages in the service sector with the irnplementation of the FTA and NAFTA.

This will be the main task of this thesis. By testing a generai hypothesis that one could expect a minimal impact on non-tradeable sectors and both positive and negative impacts on tradeatile sectors within the service sector, the accuracy of the predictions made by both proponents and opponents will be determined. Chapter 2

A Review of Studies Measuring the Impacts of the Free Trade Agreement on Canada

An Introduction: Measuring the Effects of Free Trade

How can one determine the actual effects of the FTA and NAFTA? In chapter one, a review of the free trade debate was given which showed a definite lack of consensus on this issue. Over the last decade, several studies have been conducted by an array of groups and institutions, which have attempted to assess the actual impacts of the agreements in terms of job losses/job gains and wage lossedwage gains. These studies were conducted over three major time pen'ods: pre- 1989, 1989- 1 993 and 1993-present.

A review of the impact studies provided in this chapter, also reveal a definite lack of consensus. Indeed, the lack of consensus throughout the fiee trade debate and the discrepancies in the impact studies indicate the need to examine more thoroughly the actual effects of the FTA and NAFTA.

1. General Studies That Have Attempted to Measure the Effects of Free Trade

Pre- Free Trade Studies

The literatwe that addresses the effects of the FTA and NAFTA is abundant.

Several authors, researchers, research organizations/institutions, etc. have attempted to assess the overall effects of fiee trade, trade liberalization and also the FTA and NAFTA 24 in particu1a.r- One particular study that was conducted in the pre-free trade period

atternpted to assess the overall impacts of free trade with the United States. In 1986,

Professor Gilbert Winham, at the Centre for Foreign Policy Studies, Dalhousie University

did a study in conjunction with the MacDonaid Royai Commission on Canada-U.S.

sectoral trade. This study's goal was to assess the impacts on Canada due to fieer trade

with the United States (Winham 1986, v). In order to make his study feasible, he

disaggregated trade into readily-comprehensible sectors and sub-sectors. ' In his study, he

used trade data fiom Statistics Canada fiom the years 1978 to 1983. In order to evaluate each sector, data on Canadian exports and imports, trade balances and tanffs on goods made by the U.S. and Canada were used. Overall, the study concluded that from the years 1978 to 1983, sectoral trade with the United States improved in al1 rnanufacturing sectors with the exception of electronics and scientific and medical equipment. The study concluded that Canada would be able to easily adapt to fkeer trade with the United States

(Winham 1986, 1-2 1).

As the implementation date of the FTA neared, several books and articles were published assessing the initial predicted impacts of the agreement. In 1988, a number of

Canadian research institutes made their own evaluations of the agreement. The

Department of Finance, Fiscal Policy and Economic Analysis division produced a srnail

I These sectors included: agriculture and food processing, fish and fish products, forestry produc ts. rnetals and minerals, energy, textiles. clothing and footwear, chernicals and petrochemicals, machinery and equipment, automotive products, urban transit, ocean and marine industries, aircraft, electronics. electrical machinery and equipment, scientific and medical equipment products, furniture and miscellaneous consumer products. The impacts of freer trade were then evaluated sector by sector. handbook in 1988. This book highlighted some of the benefits that fke trade would bring to the individual regions. It predicted net increases in jobs created throughout the country, and, lastly, it discussed the implementation of various types of adjustment programs which would be needed throughout Canada in order to help the economy in its transition after the agreement (Department of Finance 1988, 1- 10).

The Department of External Affàirs produced a similar book in 1988 discussing the possible impacts of the agreement, yet this book gave a more detailed analysis of the effects of the agreement, with the main sectors of the FTA were discussed in individual chapters? There was not a significant amount of statistical data given to support the assumptions made in this book, dthough it did provide estimates in the amount of millions of dollars that Canada would benefit in each of the individual sectors describeci.

Overall, the rnajority of the arguments given supporteci the idea that Canada would benefit from the agreement (Department of External Affairs 1988b, iii-8).

In 1988, the Economic Council of Canada also produced an assessrnent of the predicted impacts of the FTA. The major objective of this study was to simulate the impact of the bilateral agreement on output and employment by 36 industrial sectors, over both the medium tmand the longer tenn. The Council found that the agreement would result in increased output, ernployment and real incornes, as well as a stronger

Canadian dollar over the long term, and that these gains would be significant if the agreement were to be accompanied by productivity improvernents. It was noted that the agreement's full impact would only make itself felt gradually, since tariffs and other

barriers were to be phased out over a ten-year pend (Lavallée et al. 1988, iii). The

results of the Council study also suggested that the benefits of fiee trade would be fairly

evenly distributed across al1 Canadian provinces. Since the service industries were

generally the major beneficiarïes of gains in output and employment and since these

industri es were relative1y evenly distributed across the country, regiond variations in

output and employment gains were estirnated to be quite small. Ontario and Quebec

would gain slightly less than the national average, in percentage terms, because of their relatively large manufacturing base. ïhese two provinces would receive about 60% of

the overall gains in output and employment (Lavallée et al. 1988, iii). The study

employed several economic models, simulations and other types of statistical data were

used to make predictions on the impacts of the agreement. The study did realize that it was impossible to mode1 al1 aspects of the FTA, yet it tried to make an accurate analysis of the sectors that would have the greatest impacts on Canada.

1989-1 993 Free Trade Studies

There were also several studies conducted in the years direçtly afier the agreement went into effect on January 1, 1989. In his book Free Trade on the Prairies: The

Implications of the Canada- US. Trade Pact for the Three Prairie Provinces, S teve

Dorey of the Canadian Plains Research Center examined the effects of individual export- oriented free trade industries important to the Prairies. The study also considered the

These included: agriculture, wine and distilled spirits, energy, trade in automotive goods, financial 27 sectord and regional implications of various economic models conceming trade and trade

Iiberalization. Lastly, the macroecunomic effects of free trade and their consequences for

the Prairie region were also evaluated (Dorey 1989, 1-7). Statistical data used by the author included: Prairie employment patterns in various sectors, Canadian and U.S. biiateral tariffs following the irnplementation of the agreement and Canadian merchandise trade balance and exch!nge rates fkom 1970- 1988 (Dorey l989,2- 10 & 38).

The study concluded that both the Prairie and worId economies have both evolved over the past several decades in ways that remove much of the attraction of bilateral free trade for the Prairie provinces, and that the Canada-U.S. Free Trade Agreement did not initially meet the needs of the Prairie provinces and was very unlikely to rneet their needs in the future. It was concluded that there were also severai factors inherent in the agreement that were significant risks for the fbture development of the Prairie region (Dorey 1989,

107- 1 14).

In 199 1, two years after the implementation of the agreement, the Canadian

Centre for Policy Alternatives produced Paying the Price: How Free Trade is Hurting

The Environment. Regional Development and Canadian and Mexican Workers. This book consistai of three articles that discussed the negative effects that fiee trade had on each of the above areas. The last article in the book, discussed how the U.S.-Canada trade deal had affecteci Canadian workers. The author focused on these basic areas in his argument: low-wage "bait", poor trade-off, high unemployment, social spending cuts and resources threatened (Sinclair 1991, 22 as cited in Canadian Centre for Policy

------services and investment. 28 Alternatives 1991). According to the author, continuing down the fkee trade path would continue to undermine the hopes for a more just, participatory, and sustainable society in

Canada. "It implies steadily deteriorating wages and working conditions and eroding levels of social environmental protection" (Sinclair 1991, 25 as cited in Canadian Centre for Policy Alternatives 1991). He concluded by stating:". ..in Canadian industries that have a significant labor component, more workers would continue to be unernployed and the rest would suffer as they were forced to compete directly with "maquiladora" wages.

Pressures would increase from employers that remained in Canada to cut wage costs and benefits" (Sinclair 1991,28 as cited in Canadian Centre for Policy Alternatives 1991).

Maude Barlow, in a Council of Canadians study, also felt that the FTA had ben failure for Canada. She pointed to the fact that cheaper American irnports caused hundreds of Canadian companies to shut down. With no reason to stay, many hundreds of others moved to the United States. In the first year of fiee trade, 92% of al1 new businesses set up in Buffalo, New York, were Canadian. US. corporate parents, who were no longer required to create employment in Canada, wnverted Canadian plants to warehouses. By the spring of 1991, Barlow argued, there were at lest 350,000 manufacturing jobs lost in Canada. Moreover, in 1990, Canada's manufacturing output decreased by 10% - depression leve'i statistics. In the same year, the manufacturing workforce shrank 1 1%. Barlow userteci that many of these jobs would never return. In

Ontario alone, the industrial heartland of the country, Barlow argued that well over half of the layofis in 1990 and 1991 were due to plant closures (Barlow 1991, 163-165).

According to the study, free trade-dnven corporate restrucnuing had been a one-sided 29 affàk "Record mergers, takeovers, closures, downsizing and rationaiizations have

destroyed thousands of jobs" (Barlow 199 1, 165-166). In the two years ending in the

spnng of 1990, a record 1,403 Canadian wmpanies were taken over, at a price of over

S35.5 billion. Yet, 8% of this was new investment in Canada. These takeovers were directly connectai to job loss. For every billion dollars of profit made by a Canadian fixm in Canada, 765 jobs were created. For every billion dollars of profit made by a U.S. firm in Canada, 17 jobs were created (Barlow 1991, 165-166). Barlow's study results also indicated that job losses would be worse after the implementation of NAFTA, which added Mexico to the agreement. Forty-five companies, which collectively shed some

15,000 jobs in Canada in 1989-1990 were active in "rnaquiladora" Mexico. Barlow maintained that Canadian workers simply couId not compete with the wages paid to the workers of Mexico. As a result Canadian workers in several sectors such as auto parts, plastics, furnittue, food processing, appl iances, chernicals and textiIes would be vulnerable to severe job losses (Barlow 199 1, 167).

In The Befrayal of Canada, Me1 Hurtig, also an opponent of fiee trade, asserted that according to a fiee trade impact study conducted by Statistics Canada, there was a significant decline in new jobs in the first two years, 1989 and 1990 of fiee trade. He referred to Statistics Canada data, which indicated that some 803,000 new jobs were created in Canada during the two years before the FTA, while only 73,000 new jobs were created in 1 989 and 1990. To cite one example, jobs in the goods-creating sector of the

Canadian economy had been increasing steadily since mid-1986 until the end of 1988.

But, beginning in January 1989, they dropped al1 the way back to the level of 1984. 30 According to Hurtig 's study results, fkom January 1989, the fint month of the FTA, to the

end of June 1991, the increase in the number of unemployed Canadians exceeded

452,000. In 199 1, the unemployment rate was more than 10% for the first the in five

years. By the end of Jme, 1991, there were 1, 453,000 Canadians unemployed (Hurtig

199 1, 16-20).

In 1992, Bruce Campbell, of the Canadian Centre for Policy Alternatives, also a

staunch opponent of free trade wrote Canada Under Siege: Three Years In10 the Free

Trade Era, which offered an analysis of the agreement uiree years aAer its

implernentation. According to Campbell, the destruction of jobs was the most visible

manifestation of the restructuring of the Canadian economy after the implementation of

the FTA. A drop in the manufactsuing workforce was identified as the most pronounced

area of job loss. Campbell noted that by looking at the economy as a whole, in the five

years prior to the FTA's implementation, the Canadian economy created an average of

325,000 jobs per year. If that trend had continued, the economy should have created

almost one million new jobs in three years of fkee trade. instead, in the period fiom

January 1989 to October 199 1, there was a destruction of 100,000 jobs. As of November

199 1, the unemployment polls rose fiom an official 7.8% to 10.3% (1,423,000 persons).3

Post-1993 Free Trade Studies

The Department of Finance produced an economic assessrnent of the FTA in

1993. This study was an actuai impact study of the FTA, but it also made some predictions about how Canadians would be affected with the implementation of NAFTA.

The results of their report were very optimistic. Their report discussed many of the

positive gains that Canada experienced afier the implernentation of the FTA. Its main

areas of focus were: the econornic gains fiom fieer trade, long-term economic benefits of

the agreement and medium-tenn macroeconomic effects of the agreement Department of

Finance 1993, 1-12). The book presented several data charts and tables, which supportai

the arguments made.* Overall, the study concluded that the econornic benefits 60m trade

liberalization with the United States had been extensive. Wiîh the implernentation of

NAFTA, they estimated that Canadians could expect real incomes to nse by at least 2.5%

in the long-tenn. According to the NAFTA predictions, Canadians muid dso expect at

Ieast 120,000 new jobs by the year 1998, according to the Department of Finance five-

year estimates. The study also concluded that 75,000 or more existing jobs would be at jeopardy due to increasing U.S. protectionism in the absence of the agreement. Since the

agreement was set up to be phased in over a IO-year period, Canadian fims and workers

would have time tc gear up and take advantage of the new opportunities that would be

created (Department of Finance 1993, 1- 12 & 5 1). According to the study, tiee trade was

beneficial to both Canada and the U.S. Previous experiences with trade liberalization,

such as the European Economic Community and the Canada-US.-Auto Pact, provided

convincing proof of this. The study concluded by stating: "The Canada-U.S. Free Trade

The source of most of this data is Statistics Canada. ' The sources of the statistical &ta included: Statistics Canada, Revenue Canada, Department of National Revenue, Department of Finance, Trade Negotiations Ofice, Labour Bureau, OECD and the institute for Research and Public Policy. 32 Agreement will send a signal favorïng trade liberalization to the rest of the world.

Canada's enhanceci access to the large U.S. market will also stmgthen the ability of

Canadian fims to take advantage of the opportunities that will arise fiom fbture

mu1tilateral trade liberalization" (Department of Finance 1993, 5 1).

To the contrary, in Free Trade: Neither Free Nur About Trade Christopher Merrett

asserted that many of the predictions made by proponents of the FTA about job gains did

not prove to be true. According to Merrett, a pro-business Iobby called the Canadian

Alliance for Trade and Job Opportunities (CATJO) had proclaimed that there would be

"more jobs, better jobs" resulting from the FTA. The Economic Council of Canada had

estimated that the FTA would create three new jobs for every one job lost. The

Economic Council of Canada also had predicted that the FTA would generate 250,000

new jobs for Canadians between 1989 and 1998. More conservatively, an economist at the University of Wisconsin stated had that the worst-case scenario for Canada would be a 0.2 percent job loss in manufacturing employment (Mmett 1996, 152-156). Yet, according to Merrett, the reality for the Canadian worker had been quite different. In

fact, Canada had experienced a net loss of over 125,000 jobs. Job growth in Canada had stagnated whiie the number of manufacturing jobs available to Canadians dropped. The

Canadian unemployment rate dropped steadily during the 1980s until it was about 7 percent in 1989. By rnid-1993, over 11 percent of the Canadian labor force was out of work. Merrett did assert that the recession accounted for some jobs losses in Canada, yet the dramatic upswing in the Canadian unemployment rate revealed that something else was going on besides the recession. He maintained that the FTA was the primary suspect 33 for causing this increase (Merrett t 996, 153- 156).

Merrett also maintained that many Canadian firms and multinational corporations

(MNCs) in Canada went on a merger and acquisitions spree in 1988 and in every year since the FTA was implemented to compete in the larger continental market. Mergers,

Merrett pointed out, had the unfortunate side effect of eliminating redundant jobs. Over

10,000 workers lost their jobs in FTA-related mergers and consolidations by such firms such as Molson's, Gillette Canada, GM Canada, Jarman Incorporated, and Pittsburgh

Paint and Glass. Merrett argued that trimrning the payroll had been a central corporate goal during the restmcturing period initiated by the FTA. As evidence to support this point, Merrett referred to an event that occurred in October, 1989. A private agency called the Canadian Institute held seminars instructing senior executives how best to approach the firing of surplus workers. The theme for the seminar was that firing workers was a necessity when companies merged or restnictured in response to fkee trade and global economic pressures (Merrett 1996, 1 57).

Lastly, Merrett argued that many Canadian job losses resulted from plant relocations. Over 42,062 jobs shifted fiorn Canada tu the United States and Mexico between 1988 and 1994. Canada lost about 463,QO jobs due to the relocation of production and plant closures. The total number of Canadians employed in 1992 was estimated to be 12.2 million people. That meant that the FTA had resulted in the elimination of 4% of jobs in Canada. According to Merrett, Canadian job losses had far exceeded the worse-case scenario predicted by a professor from the University of

Wisconsin who advised the Economic Council of Canada that Canada would lose at most 34 0.2 percent of its jobs. Al1 in dl, Merrett concluded that massive job losses had corne in

addition to the increasingly segmentai work force and declining real wages (Mmett

1996, 1 92- 193).

As previously stated in chapter one, many opponents and opponents of fiee made had been concemed about its implications on wages. in 1993, Campbell gave an assessrnent of the impact on workers wages as a result of fiee trade. According to

Statistics Canada data, average real eamings of Canadian workers did not grow at dl during 1988-92, yet the earnings of corporate executives had continued their steady climb? The Conference Board Survey of the compensation packages of top executives, although incomplete, reveded that during the 1987-90 the compensation for these executives grew an average 8% per year in manufacturing, banking and diversifiai services companies; 8.5% per year in insurance companies and an average of 16% per year in energy companies (Campbell 1993, 15- 16).

Campbell also maintained that afier the implernentation of the FTA, the gap between the earnings of top Canadian executives and the average floor keeper was second highest in the world (the US. being first). According to Campbell, the redistribution of income fiom low and middle income to high-income groups in Canada accelerated in the fiee trade era. He asserted that the increase in income inequality accelerated markedly under free trade. During 1987- 1991, the share of the income pie of

The incomes of top corporate executives in Canada are notoriously difftcult to determine because there are no legal reporting requiremenis in Canada, Only if corporations are listed on U.S. stock exchanges do they have to report the incomes of their top Canadian executives. Most private surveys of executive compensation are not nomally public information. 35 the top 20% of Canadian incorne earners increased an average of 1-2% per year, almost double their annual increase of 0.69% during 1979-87. The bottom 60% of Canadians, on the other hand, saw their share of national income drop 1.8% per year during 1987-9 1, two and one-half times faster that the rate at which they were losing income share during

1979-87 (-0.74% per year) (Campbell 1993, 16- 17). So, who were the red recipients of increased wages according to Campbell? These were not average shop workers, but

Canadian executives. The top 20% of Canadians increased their share of the national income pie by an extra $9.5 billion in 1991 over and above what they would have received if their share of the pie had remained at the same level as in 1987. They gained at the expense of the bottom 60% of Canadians who lost an extra $12 billion over and above what they would have received if their share of national income had remained constant at the 1987 level (Campbell 1993, 17).

Chnstopher Merrett asserted that fiee trade was initially promoted as a long-term development strategy, which would create more jobs with higher wages. According to

Merrett, precisely the opposite happened (Merrett 1994, 175). Agreeing with Campbell,

Merrett maintained that wages had been driven down afier the fiee trade ma because

Canadian business leaders continued to adhere to the classic notion that increased competitiveness came rnainly by lowering labor costs. He argued that the Tories increased unemployment as a strategy to drive down wages when they publicly promoted the FTA for its ability to create jobs and increase wages. Since 1989, according to

Merrett, Canadian workers had seen corporate profits in export sectors increase while their wages had stagnated or even fdlen. According to Merrett, the average Canadian 36 worker was worse off now under the FTA than he was pnor to 1989 despite the dramatic increase in trade (Merrett 1996, 158).

In the same year, 1996, Campbell produced another study entitled: Challenging

"Free Trade" in Canada: The Real Srory. In this study, he focused on jobs. To begin,

Campbell asserted that employment in manufacturing plummeted in the early 1990s.

Almost one in five jobs were lost between 1988 and 1994. Between 1988 and 1994,

334,000 manufacturuig jobs, 17% of the pre-FTA total, were lost (Campbell 1996, 8).

This decline continued despite some economic recovery in 1993 and 1994. According to

Campbell, the biggest job losses were in labor-intensive areas such as clothing and the assembly of electronic goods. In the clothing industry, which ernploys mostly immigrant women who often speak neither French nor English, there were 37,000 jobs lost between

1988 and 1994, representing 30.6% of the pre-FTA workforce. In the "winning" sectors such as machinery, transportation equipment (mostly auto) and electrical and electronic products. there were no employment gains between 1988 and 1994 (Campbell 1996, 7-8).

Since the FTA was signed, Bruce Campbell and other members of the Canadian

Centre for folicy Alternatives have been keeping track of the employment record of 48 mernber companies of the Business Council on National Issues (BCNI), the staunchest proponents of fiee trade. In 1988, during the election carnpaign, the BCNI repeatedly told Canadians that the FTA would enable them to hire more workers. Over the period

1988-1995, 37 BCNI members laid off a total of 215,414 employees, or 28% of their

1988 workforce. The other 11 companies surveyed did create more jobs since the FTA was implernented, but their combined total was only 11,993 new jobs. The percentage of 37 the Canadian adult population with jobs fell each year &om 1989 through 1993, before

recovering slightly in 1994 but remaining stagnant in 1995. It is significant to note that

the proportion of women with jobs also fell in the time period 1988 to 1994, reversing a

decades-long upward trend. In conclusion Campbell maintained that the FTA and

NAFTA years have been clearly associated with major job losses, even in areas wbere

there have been major export gains (Campbell 1996, 10).

Summary of Generd Studies

Much of the literature available discusses and summarizes the initial predicted effects of the FTA in general. Throughout the pre-fiee trade period, there were several sîudies produced which gave positive predicted impacts as a result of the FTA. Some of these included the Winham study in 1986, the Department of Finance study in 1988 and the Department of Extemal Affairs study in 1988. To the contrary, in the pst-fiee trade period, there were more studies done which showed an even higher lack of consensus among the various findings regarding the impacts on jobs and wages. For exampie, in al1 of their studies, Campbell and Merrett maintained that there were severe job losses and wage decreases throughout the FTA and NAFTA periods. To the contrary, the

Department of Finance continued to support the idea that Canadian workers benefited fiom fiee trade. Clearly, there was a lack of consensus arnong the various studies produced and fiirther study must be pursueci. II. The Service Sector

Why the Service Sector? A growing proportion of Canadians are employed in service industries rather than

in goods-producing industries. Indeed, trade in services is the fastest growing part of the

Canada-U.S. commercial relationship, totaling an estimated $26.4 billion in 1992

(Rosenberg 1994, 253). The service sector is important because, with over 70% of

Canadian workers employed, it is by far the largest component of Canada's economy in

terms of employrnent and gros domestic product. It is also the largest employer of women in Ontario. Thus it makes good sense to look closely at the economic sector that provides a livelihood for three out of four Canadians, especially in Iight of the lack of consensus concerning the impacts of fiee trade on jobs and wages generally.

The Service Sector Defined

A first step in understanding the service sector is focusing on what it encompasses. There is, unfortunately, no universally accepted definition of what constitutes this sector. Some attempts at definition focus on the "intangibility" of services. In this view, a service is something that is of economic value, but that cannot be physically touched or handled. But this can be misleading and confiising. Not everythmg that is intangible - for example business reptation or good will is actually a se~ce.And, not every service is readily perceived as intangible; for example books, Mdeocassettes and credit car& (Ministry of Treasury and Economics l986,4).

Other definitions of the service sector use the "residual" approach. Whatever

cannot be readily categorized as part of the prirnary or manufacturing sectors is regarded

as part of the service sector. But even here, there are disagreernents: some "residual" definitions exclude construction andor utilities fiom the service sector (Ministry of

Treasury and Economics 1986,4).

For the purposes of this research project, a very general definition of the service sector will be utilized. The se~ceindustry is understood here as one that produces a service rather than a tangible good, for which someone will pay money (Rosenberg 1994,

252-253).

Semce Sector Studies That Have Attempted to Measure the Impacts of Free Trade

As previously stated, most of the studies done on fke trade were general. Yet, there were a limited number of studies done on the service sector in both the pre and pst free trade periods. For the moa part, the studies focused mainly on service sector jobs.

None of the se~cesector studies produced attempted to specificaily examine the impacts on wages, h~wever.~As with the general studies, there was a definite lack of consensus as to how jobs were affected throughout the service industry with the implementation of the FTA and NAFTA. Due to the limited nature and lirnited number of studies done on the service sector, this industry needs to be examined more thoroughly.

Bruce Campbell did mention service sector wages in his 1992 study entitled: Canadà Under Siege: Three Years Into The Free Tmde Era, but the main focus of the study was on service sector jobs. 40 Pre-Free Trude Studies on the Sentrce Se-

In 1988, the Department of Extemal Affàirs produced a book entitled: The

Canada-US. Free Trade Agreement and Services. Authors of this study were proponents

of the FTA and they argue. that the service industry was not at nsk and would benefit

significantly fkom the agreement. They argued that as a result of the increased security of

market access and streamlined border crossing procedures for service industry personnel

and other temporary business visitors, Canadian hswould be able to plan initial market development and carry out their operations in the United States more easily.

Overall, these proponents predicted that the services industry would be positively

affected as a result of the FTA (Department of Extemal Affairs 1988% 1-7).'

Authors of the study asserted that the agreement's provisions on services was a major step towards ensuring open and cornpetitive trade in services between Canada and the United States. Service industries could anticipate significant growth in the future, both as a result of direct trade oppominities with the United States and as the result of growth in dernand in the domestic services market, arising fiom new investment flows and increased consumer disposable income. It was predicted that small business, which dominated the service sector, would benefit &om the improved economic conditions that

7 Their study focused on specified areas of the service sector, which include: professional consulting services, archi tec ture, cornputer and enhanced telecommunications services, cultural services, insurance. financial services and tourïsm. The impacts on these areas of the senice sector were measured by looking at services in the Canadian Economy in 1986 and 1988 (Gross Domestic Product vs. Average Employrnent), 1987 Average Employment in Service Sectors by Province, Canada's international Trade in Services, 1985, Canada's Trade witb the United States in Senices 1983- 1987, and Tourism Revenue hm International Visitors, 1986 (Department of Extemai Affairs 1988a, 9-19). 41 would increase demand and generate additional opportunities for ernployment and entrepreneurship (Department of Extemal Affairs 1988% 34). Overail the study concluded that the agreement would have a significant positive indirect impact on the service industry (Department of Extemal Affairs 1988% 33-3 7).

1989-1 993 Free Trade Studies an the Service Sector

Bruce Campbell agreed with many of the opponents of the FTA and his main argument was that jobs in the service industry would be negatively affected as a result of the FTA. After the completion of his study on the effects of the FTA entitled: Canada

Under Siege: Three Years lnto the Free Trade Era (1FU), which was partially devoted to study of the service sector, he concluded that the destruction of jobs was the most visible manifestation of the restmcturing of the Canadian economy afier the implementation of the FTA.~ He maintained that many Canadian wmpanies in the senice industry benefited from a significant arnount of productivity gains in the early

1990s as a result of the FTA. Yet he argued that these productivity gains had not been shared with the average worker. As a result, wage rates suffd (Campbell 1992, 1-3).

Moreover, according to Campbell, the senice industry lost over 562,000 jobs (7.2%) between 1989 and 199 1. According to his results, employment in services closely linked to manufacturing (Le. services to business) had fallen to a low of 14.7%. Employment in the key area of engineering and scientific services had fdlen 9% (Campbell 1992,3).

8 ( This si@ was also referred ro previ~us[vin thk chapfer). 42 Post-1993 Free Trade Studies on the Service Seetor

In October 1993, Bruce Campbell produced another fkee trade snidy in conjunction with Andrew Jackson entitled "Free Trade": Destroyer of Jobs: An

Examinution of Canudian Job Loss Under the FTA and NAFTA. To begin, Campbell asserted that during the four years firom December 1984 to December 1988, the last rnonth before the trade deal was implemented, 1.3 million jobs were created and the unemployment rate stood at 7.5%. Between Decernber 1988 and August 1993, the economy added zero jobs. During this the period, there was a net destruction of

29 1,000 full-time jobs. During the period between Decernber 1988 and December 1992,

Campbell found that many service industries suffered fiom job losses. Transportation lost

37,400 jobs (8%), wholesale/retail trade lost 7,000 jobs (3.8%), and accornmodation/food

Iost 65,000 jobs (9%). Surprisingly, even business services overail shed a net 9,600 jobs

(2%) with the hardest hit being advertising which lost 10,800 jobs (34%). Financial services jobs remained alrnost flat, adding up just 8,400 jobs (1.8%) (Campbell 1993, 1-

3). Campbell also maintained that ody modest gains in the major public service sectors kept the overall job situation fiom being much worse. Educational seMces created

67,100 jobs (7.9%), health and social services created 49,000 jobs (4.6%) and government administration added 32,400 jobs (Campbell 1993, 4). Overall, Campbell concluded that despite positive signs in a few sub-sectors of the service industry, the job creation nurnbers were miniscule. The public service sectors - education, health, social senices and administration absorbed 148,000 workers, but given the extreme financial stress that these sectors experienced and the disinclination to change policy direction, 43 even partial absorption by public sectors was not likely to continue in the fume

(Campbell 1993,s-6).

Summary of Service Sector Studies

In comparing the pre-fiee trade service sector study done by the Department of

External AFfairs in 1988 with those done by Campbell in 1992 and 1993, it was obvious

that there was a iack of consensus on how jobs in the service sector were impacted. As

previously stated, however, there were a very Iimited number of service sector studies actually completed. In order to accurateIy determine the effects on jobs and wages in the service sector during the implementation of the FTA and NAFTA, further detailed analysis is needed. Chapter 3

Methodology

Introducir0on

The main conceni that proponents and opponents of free trade had with the senice sector was the potential effects that it would have on jobs and wages. Many proponents argued that the service sector would see a significant increase in jobs, while opponents argued that there would be significant decreases. Proponents and opponents also made similar arguments about service sector wages. This disagreement sets the context for the main research questions in this thesis: How were employment levels within the service industry affected during the implementation of the FTA and NAFTA?

Did employment levels increase or decrease and to what extent? How were wage levels within the service industry affected during the implementation of the FTA and NAFTA?

Further, did wage levels increase or decrease and to what extent? To arrive at answers, first we must determine whether changes in jobs and wages can be correlated with the implementation of the FTA and NAFTA. By testing a general hypothesis that one could expect a minimal impact on non-tradeable sectors and both positive and negative impacts on tradeable sectors within the service sector, the accuracy of the predictions made by both proponents and opponents will be detemineci.

Service Secîor Categorimtion

For the purposes of this sîudy, the service sector was divided into three broad categories and various chosen sub-secton within the s&ce industry were placed within these broad categories. As previously stated, the service sector is vast and therefore only a limited number of sub-sectors could be examined. How were these sectors chosen and then categorized? First of all, the three categories included: (1) non-tradeable (2) tradeable, import penetratiodimport competing and (3) tradeable, export- orientai. Non- tradeable goods and senices are items and services for which there exist supply and demand for import and export, but that are not traded (Rosenberg 1994, 253). Some examples are educational services and health care and social assistance. In the tradeable category, import penetration occurs when teachers, consultants, doctors, executives, and unskilled workers take up temporary residence in the importing country in order to deliver their se~ces.Industrial equipment leased for temporary use similarly provides services that represent an import to the country where it is operated. Also in the tradeable category, exports occur when tourists, students, and medicd patients go to the exporting country ternporarily in order to absorb travel, accommodation, food, educational, and medical services. Export-oriented services are also generated when goods are brought into a country temporarily for the administration of repair services or other minor transformations like packaging, cleaning, and sorting (Cirubel& Walker 1989,33).

Why were these categories chosen? To begin, many proponents and opponents of free trade argued that there would be significant job and wage increases and decreases as a result of the FTA and NAFTA. By organizing the service sector as explained above, one cm distinguish among tradeable and non-tradeable sectors. This distinction is very important. For example, if jobs were lost or gained in the non-tradeable sector, one could argue that they were not gained or lost as a result of the FTA or NAFTA because nothing was being traded. On the other hand, many tradeable sub-sectors may have been affected by fiee trade because the goods and services were traded. Jobs could be gained or lost as

a result of the implementation of the FTA and NAFTA. For example, one might expect job losses and wage decreases associated with imports and job gains and wage increases

associated with exports.

Sub-Sectorsfor study within the Service Indu-

It was also necess;try to choose sub-sectors within the service industry. in order to make the study feasible, within each category, a limited number of sub-sectors were chosen that were non-tradeable, import competing and export-oriented. As a first step, the sub-sectors which were the most easily identifiable and which had the clearest definitions were chosen. By choosing the clearest examples, there would be less room for discrepancy in classifjmg the sectors.

How was this done? Sub-sectors within the service industry that clearly were important to the Canadian economy were chosen. The sub-sectors in 1987 with the highest levels of employment in Canada included: "community, business and personai services" 7,869,000; "retail and wholesale trade" 4,232,000; and "'transportation, communications and other utilities" 1,s 1 1 1,000. This data was obtained fiom Statistics

Canada, Labour Force Survey. Then, several sources were consultd in order to categorize the sectors as non-tradeable, import competing or export-oriented. For sectors in which the distinction was not clear, a decision was made in order to determine if the sub-sector was more import competing or more export-oriented. This was done by looking at the annual output growth rate in service-industries fiom 197 1- 199 1. This data was obtained fiom a study entitled: The Knowledge-Based Economy: Shifts in

Industrial Output." This information indicated the percentages of growth rate for various 47 sectors within the service industry; it gave both the import penetration annual growth rate percentages and the export growth rate annual percentages. Based on this information, industries were categorized as more import competing or more export-oriented. Based on information fkom other literature on the service sector which was produced by the

Ministry of Treasury and Economics, the Fraser Institute and the North Arnerican

Industry Classification System, it was concluded that both retail and wholesale trade were non-tradeable, transportation and warehousing (transportation and storage) and information and culture industries (computer and related services) were import competing, and professional, scientific and technical services (architecture, engineering and other scientific and technical senices) were export-onented. These industries were also specificaily chosen because they were the largest within the chosen categories and these sectors provided the clearest cases with the least amount of ambiguity.

SublSector Definitions

The sub-sector definitions chosen were consistent with those of the North

American Industry Classification Systern (NAICS) that was produced by Statistics

Canada. The North American Industry Classification System (NAiCS) is an industry classification system developed by the statistical agencies of Canada, Mexico and the

United States. It is designed to provide common definitions for the industrial structure of the three countries and a common statistical Famework to facilitate the analysis of the three economies. NAICS is based on supply side or production-oriented principles, to ensure that industrial data, provided to NAICS, is suitable for the analysis of production related issues such as industrial performance (NAICS Statistics Canada I998,3). Non-tradeable sub-sectors defineci, (retail trade and wholesale trade)

Retail Trade- The retail trade sector comprises establishments prirnarily engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise. This sector comprises two main types of retailers, that is, store and non-store retailers. The types of store and non-store retailers in this sector include: motor vehicle and auto parts dealers, furnitue and home fùmishing stores, electronics and appliance stores, building material and garden equipment and supplies dealers, food and beverage stores, health and personal are stores, gasoline stations, clothing and clothing accessories stores, sporting goods, hobby and musical instrument stores. general merchandise stores, miscellaneous store retailers, non-store retailers

(NAICS Statistics Canada 1998, 284-3 15).

Wholesale Trade- This sector comprises establishments prirnarily engaged in wholesaling merchandise and providing related logistics, marketing and support services.

This sector recognizes two main types of wholesalers, that is wholesale merchants and wholesale agents and brokers. The types of wholesale merchants and wholesale agents and brokers in this sector include: farm product wholesaler-distributors, petroleurn product wholesaler-distributors, food, beverage and tobacco wholesaler-distributors, persona1 and household goods wholesaler-distributors, motor vehicle and parts wholesaler-distributors, building material and supplies wholesaler-dishibutors, machinery, equi pment and supplies wholesaler-distributors, miscellaneous wholesaler- distributors, wholesale agents and brokers (NAICS Statistics Canada 1998,250-284). Import cornpethg sub-secton defined, (transportation and warehousing and information and culture industries)

Transportation and Warehousing (Transportation and Storage)- This sector comprises establishments primarily engaged in transporting passengers and goods, warehousing and storing goods, and providing services to these establishments. The modes of transportation are road (trucking, transit and ground passengr), rail, water, air and pipeline. These are Mersubdivided according to the way in which businesses in each mode organize their establishments. National post office and courier estabIishrnents, which also transport goods, are included in this sector. Warehousing and storage establishments are subdivided according to the type of service and facility that is operated (NAICS Statistics Canada 1998, 3 1 5).

Information and Cultural Industries (Computer and Related Services)- This sector comprises establishments primarily engaged in creating and disseminating (except by wholesale and retail methods) information and cultural products, such as written works, musical works or recorded performances, recorded dramatic performances, software and information databases, or providing the means to disseminate them. Establishments that provide access to equiprnent and expertise to process information are also included. The main components of this sector are the publishing industries, including software publishing, the motion picture and sound recording industries, the broadcasting and telecornrnunications industries, and the information services and data processing industries (NAICS Statistics Canada 1998,339). Export oriented sub-sectors defined, (professionai, scientific and technical services)

Professionai, Scientific and Technieal Sentices (Architecture, Engineering and

Other Scientific and Technical Services)- This sector comprises establishments primarily engaged in activities in which human capital is the major input. These establishments make available the knowledge and skills of their employees, often on an assignment basis. The individual industries of this sector are defined on the basis of the particular expertise and training of the seMce provider.

The main components of this sector are ïegal services industries, accounting and related services industries, architectural, engineering and related services industries, surveying and mapping services industries, design services industries, management, scientific and technical consul ting services industries, scienti fic research and development services industries, and advertising services and industries (NAICS

Statistics Canada t 998, 385).

3 time periods of study

There were three time periods used in this study: pre- 1989, 1989- 1993 and 1993- present. These time periods were chosen because first it was important to compare the changes between the pre-free trade and pst-fiee trade periods. This gave a general idea of the characteristics and patterns of service sector jobs and wages before and afier the

FTA and NAFTA were implemented. Sewndly, these years correlated with the years in which several "impact" studies were done i.e. studies made by the Economic Council of

Canada, Canadian Centre for Policy Alternatives, Centre for Foreign Policy Studies,

Department of Finance and the Department of External Affkirs.

5 1 Dutu used im th& stu&

In order to detemine the accwacy of the predictions made by proponents and opponents of fiee trade, it was necessary to look at employment levels and wage levels throughout the pre-free trade period, during the years of the actual implementation of the

FTA and NAFTA and also during the post-free trade period. The years 1987 to 1998 were chosen for years of data study. These years were chosen because they included a time span which incorporated the pre-free trade period, the years in which the FTA and

NAFTA were signed and aiso the pst-fkee trade period. It is also important to note that

1987 was chosen as the year of start because this is the year in which NAICS (North

Arnencan Industry Classification System) took effect and this was two years before the

FTA was implemented, so one can get a good indication of how employment levels and wage levels were before fiee trade was actually implernented.

The data on employment levels cornes from the Labour Force Survey (LFS),

Statistics Canada. This data gives the annual employment levels for the various sub- sectors within the senice industry fkom 1987 to 1998. The data on wage IeveIs wmes fiom Canada's Survey of EmpIoyment, Payroll and Hours (SEPH), Statistics Canada.

This data gives the annual average weekly wage earnings of service sector employees in various sub-sectors fkom 1987 to 1997.

Presen ration of data

The data is presented in 12 tables. This includes six tables for employment level data and six tables for wage level data. The industries were categorized into three categories: non-tradeable, import competing and export-oriente- as previously stated.

Then, the data for the various sub-sectors that fit into these categories was organized as 52 follows: the non-tradeable sector, including employment and wage data for retail trade and wholesale trade (4 tables); the import competing sector, including employment and wage data for transportation and warehousing (transportation and storage) and information and culture industries (cornputer and related senices) (4 tables); and the export-oriented sector including employment and wage data for professional, scientific and technical services (archi tecture, engineering and Other scientific and technical services) (4 tables). This results in a total of 12 tabies.

What was done wiîh the data?

First, the percentage changes by the three major time periods, pre-1989, 1989-

1993 and 1993-present were calculated in order to see if this data confirmed or refuted the information given in the "impact studies" throughout these time periods. The average annual percentage change in employment levels and the average annual weekly wage earnings fiom 1987- 1998 were also calculated. By lookuig at this tirne span, one should be able to determine if there was a significant change in employment levels and wage earnings between the pre and pst-tiee trade era. Overail, these percentages con- or refûte the initial predictions made by the proponents and opponents of free trade.

Hypothesis

One could expect minimal impact on the control gmup, (non-tradeable sectors), a negative impact on the tradeable (import competing sectors) and a positive impact on the tradea ble (export-oriented sector). Chapter 4

Free Trade Data and Analyses

Organization of data

Data in tables were set up to show the differences in annual employment levels and annual average weekly wage earnings for selected non-tradeabie sectors, tradeabldimport competing sectors and tradeable/export-onented sectors within the service industry for the years 198% 1998 (employment) and 1 987- 1 997 (wages). Tables were also set up in order to show the average annual percentage changes for employment levels and the average annual weekly wage eaniings throughout four hme periods: (1) pre-FTA -- 1987- 1988, (2) 1989- 1993, (3) 1994- 1997 and (4) 1987- 1998 (employment) and 1987- 1997 (wages). The twelve-year time span tiom 1987- 1998 was chosen in order to help control for inflation and also the Canadian Recession in the early 1990s in terrns of the impacts of the FTA and NAFTA. It was estimated that prïor to data collection, the non-tradeable sector would experience no significant change during the period of study, the tradeablelimport competing sector would suffer and the tradeabldexport-onented sector would benefit.

Overview of fmdings

For the non-tradeable sector, the average annual percentage change for employment levels fiom 1987-1998 was approximately .6% for retail trade and .75% for wholesale trade, indicating not much change. The average annual percentage change for weekly wage earnings fkom 1987- 1997 was approxirnately 2.8% for retail trade and 3.1 % for wholesale trade, which seerned to indicate a moderate increase. Yet, if one considered the average annual inflation percentage change over the same time period

1987- 1997, which was 2.83%', it was obvious that there was no signifiant uicrease at

all.

For the tradeable/import wmpeting sector the average mual percentage change

for employment levels fiom 1987- 1998 was approximately 1.6% for transportation and

warehousing and 2.3% for information and culture industries, which also indicated a moderate increase. The average annual percentage change for weekly wage earnings

fiom 1987- 1997 was much more significant, notably computer and related services, an import competing sub-sector. For transportation and storage the average annual percentage change was approximately 2.7% and for computer and related services the average annual percentage change was 5.4%.

Lastly, for the tradeable/export-oriented sector, there were significant increases in both employment and wages. The average annual percentage change for employment levels fiom 1987- 1998 showed a 5.7% increase for professional, scientific and technical services. Similarly, the average annual percentage change for weekly wage earnings from 1987-1 997 also showed an increase at 4.9% for architecture, engineering and other scientific and technical services. (The inflation rate for this time period was 2.83%).

I Inflation Rates: Statistics Canada (~~:.statcan.ca.~en~lish~P~db/Econ~my~Economic~econ46.h~. Consumer pnce index, 1996 classification, annual average ail-items Canada, historical summary 1987-88 = 4.0% 1988-89 = 5.0% 1989-90 = 4.8% 1990-9 1 = 5.6% 199 1-92 = 1SOh 1992-93 = 1.8% 1993-94 = 0.2% 1994-95 = 2.2% 1995-96 = 1.6% 1996-97 = 1.6% 1997-98 = 0.9% 1987-1997 average annual inflation percentrgc change = 2.83% An explanation of variations in data by time periods

Reflecting on the data, it is evident that the number of jobs in the non-tradeable

and the tradeable/import competing sector were adversely affected by the recession. In

the years 199 1-1993, for the most part, there was a steady decrease în the number of

employees in both retail trade and wholesale tradeS2 Ovdl, both of these sub-sectors

had negative average annual percentage changes in the period 1989-1993. The

tradeablehnport competing sector also showed a decrease in the number of employees

during the recession, but the nurnbers were smailer overail. Between t 990 and 1991,

transportation and warehousing lost 23,000 employees and information and culture

industries 1ost 6,000 ernployees. By examining the data, it is evident that the export-

oriented sector was not adversely affected by the recession to any signifiant degree. The

average annual percentage change for employment levels for professional, scientific and

professional services was 2.955% during the penod 1989- 1993.

During the recession period, it is important to note that although employrnent

levels were adversely affected in various non-tradeable and tradeabte sub-sectors, wages were not as adversely affected. Throughout the years 1989- 1993, annual average weekly wage eamings were not negatively affected in the majority of the sub-sectors studied.'

Most of the sectors studied did not show any significant decreases in their average annual percentage changes in the period 1989-1993 in comparison to the average annual inflation rate for this same period.4 Cornputer and relate-services, an irnport competing

- -- ' A fact to note, in 1993 there was an increase in the number of employees in wholesale trade fiom the revious year. in 1992, there were 422,000 employees and in 1993 there were 423,000 employees. 'The average annual inflation perreatage change for the period 1W9-1993 = 3.425% Retail trade and transportation and storage were unable to meet the average annuai inflation percentage change for this period. Their average annual percentage changes for the period 1989- 1993 were 3.065% and 3.006%. 4 See foomote 3. sub-sector showed a slight increase at 4.253% (the inflation rate during this period was

3.425%). Architecture, engineering and other scientific and technical services, an export- oriented sub-sector, performed the best. The average annual percentage change for 1989-

1993 was 5.564%.

After the recession, employment levels increased in al1 of the sectors studied. The average annual percentage changes between 1994 and 1998 were 0.836% and 1 -961 % for the non-tradeable sub-sectors of retail trade and wholesale trade, which showed a slight increase fkom the recession period. The tradeable sector perfomed better. For example, the average annual percentage change between 1994 and 1998 was approximately 2.8% for information and culture industries, an import-competing sub-sector. This was a moderate increase fiom the recession period, in which the average muai percentage change between 1989 and 1993 was approximately 0.2 1%. Professional, scientific and technical services, an export-oriented sub-sector perforxned exception al!^ well. The average mual percentage change between 1989 and 1993 was approximately 2.9%, while the average annual percentage change between 1994 and 1998 was 7.232%.

Professional, scientific and technical services did very well overall .

As for weekly wage earnings, in the period 1994-1997, the average annual percentage changes for non-tradeable sub-sectors were relatively small in comparison to both import competing and export-oriented sub-sectors. The average annual percentage changes for the period 1994- 1997 were 1.563% for retail trade and 1-67 1 % for wholesale trade. These figures did not meet the average annual inflation rate for that same perïod.s

Computer and related senrices, an import competing sub-sector, did fairly well with an average annual percentage change at 3.592%. Architecture, engineering and other scientific services performed at a slightly lower level with an average annual percentage

change of 3.496%.

The average annual percentage changes for the overail time pexiod 1987- 1998 for

employment levels was low for the non-txadeable sectors. interestingly, transportation

and warehousing and information and culture industries in the tradeabie/import

competing sector faùed better than both retail trade and wholesale trade in the non- tradeable sector. The tradeable/exprt+riented sector performed the best with an average annual percentage change of 5.709% for the overall period 1987- 1998.

As for wages, the sarne basic pattern is evident. It is interesting to note that although overall the non-tradeable sectors performed the worst, the average annual percentage change for wholesale trade in the overall period 1987-1997 was slightly higher than that of transportation and storage, a tradeable/import competing sector. For wholesale trade, the average annual percentage change for 1987-1997 was 3.125%, while that of transportation and storage was 2.759%. Surprisingly, wholesaie îrade was able to surpass the average annual inflation percentage change for this period, which was 2.83%.

It is also important to note that computer and related services, an import competing sub- sector outperfomed architecture, engineering and other scientific and technical services.

The average annuai percentage change for 1987-1997 was 5.456% for computer and related services and 4.929% for architecture, engineering and other scientific and technical services.

' The average annual ianation percentage change for the period 1W4-1997= 1.8%

58 Overall assessrnent

It is interesting to note that after examinhg the data, both sectors that were involved in trade did better than that which was not involved, in that the non-tradeable sector did worst of dl; the import competing sector did somewhat better, and the export- oriented sector did the best. It was hypothesized that the non-tradeable sector would experience no significant impact, the tradeabldimport competing sector would see a negative impact while the tradeabldexport-onented sector would experience a positive impact. Overall, parts of this hypothesis were conhed. The export-orientai sector did perform positively overall, yet it was not predicted that the import competing sector would perform as well as it did, nor was it predicted that the non-tradeable sector would perform worst of all. The fact that the non-tradeabie sector did worst of al1 could be do in part to the fact that the entire non-tradeable sector was sumrnarized by one large industry

(retail trade and wholesale trade). The non-tradeable sector may have also performed worst of al1 because it was not forced to become more efficient. This sector did not have to adjust with the implementation of the FTA and NAFTA as the tradeable sectors were forced to do. Afier analyzing al1 of the data, it was concludeci that al1 of the magnitudes of change were pretty small compared to the inflammatory language and predictions made by both proponents and opponents during the free trade debates and in the free trade impact studies. Table #la Annual Ernployment Levels in the Service Sector, Non-tradeable sector Retail Trade and Wholesale Trade: 1987-199% *(in 1000s)

Sub- 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 sectors I Retail 1.609 1,663 1,670 1,718 1,662 1,659 1,628 1,658 1,661 1,676 1,681 1,714 trade

' Whoiesaie 433 439 440 '- 452 '. 429 422 123 434 437 451 461 469 trade

Statisitcs Canada 1999, nie Labour Force Survey (US), Matrix 3472, Databank Numbers D968580 & D96858 1.

Table #Ib Percentage Changes in huai Ernployment Levels in the Service Sector, Non- tradeable sector Retail Trade and Wholesale Trade: Pre-1989 to present

./. cbange bet. 1989- 1993 1994- 1998 1987-1998 Siib-Sectors 1987- 1988 average amoal average annual average annual pre-FTA ./. change % change % change Retail trade 3.356% -0.608% 0.836% 0+593O/O Wholesale tnde 1,385% -0.939% 1.96 1% 1 0.754% ,

Table #ta Annual Average Weekly Wage Earnuigs in the Service Sector, Non-tndeable sector Ret ail Trade and Wholesaie Trade: 1987- 1997 (Canadiun doIfam)

Sub- 1987 1988 1989 1990 1991 1992 1993 1994 1995 1 1996 1997 - sec tors

Retail $267 $277 S289 $303 $314 S31g $326 $336 $339 ~344 5352 ' u-ade Wholesale 1 S457 $474 $502 $525 $545 $566 5577 $591 a608 $608 $621 . [ mde I

Statistics Canada 1999, Survey of Ernployment. Payrolls and Hours (SEPH), Matrix 4291, Databank Numbers L658708 & L658736.

Table #2b Percentage Changes in Annuai Average Weekly Wage Earnings in the Service Sector, Non-tradeable sector RetaiI Trade and Wholesale Trade: Pre-1989 to present

% change bet. 1989-1993 1994- 1997 1987-1997 Sub-Sectors 1987-1988 average annual average annual average annud pre-FTA % change % change % change Retail trade 3.745% 3.065% 1.563% 2.809% Wholesaie trade 3.7 19% 3 .546% 1.67 1% 3.125% Table #3a Annual Employment Levels in the Service Sector, Import cornpethg sector Transportation and Warehousing and Information and Culture industries: 1987- 1998 +(in 1000s)

Sub-sectors 1987 19%8 1 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Transportation 7 and 633 621 649 646 623 630 622 650 685 682 708 701 Warehousing Information andculture 492 507 534 ,521 ,515 1517 1538 566 1584 582 ,617 632 1 Industries

Statisitcs Canada 1999, The Labour Force Survey (LFS), Matrix 3472, Databank Numbers D968582 & D968590.

Table #3b Percentage Changes in Annual Employment Levels in the Service Sector, Import competing sector Transportation and Warehousing and Information and Culture Industries: Pre-1989 to present

% change bet 1989-1993 1994- 1998 1987- 1998 Sub-Sectors 1987-1988 average annual average annual average annual pre-FTA ./O change % change % change Transportation and Warehousing - 1.895% - 1.042% 1.942% 1.62 1% Information and Culture Industries 3.048% 0.2 16% 2.820% 2.338%

Table #4a Annual Average Weekiy Wage Eamings in the Service Sector, hport competing sector Transportation and Storage and Computer and Related Services: 1W7-1997 (Canadiun dolfars)

Sub-sectors 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 ' 1997 Transportation and Storage $526 $551 $567 $581 $615 $627 $638 $647 $662 $674 $690 Computer and Related S516 $555 $609 $669 $71 1 $729 $717 8785 $791 $818 $872 Services

Statistics Canada 1999, Survey of Employmenr. Payrolls and Hours (SEPH), Matrix 4291, Databank Numbers L658682 &L65878 1.

Table #4b Percentage Changes in Annual Average Weekly Wage Eanùngs in the Service Sector, Import competing sector Transportation and Storage and Computer and Related Services: Pre-19û9 to present

1 % change bet. 1989- 1993 19941997 1987- 1997 / Sub-Sectors 1987-1988 average annual average annuai average annual pre-FTA ./. change % change % change Transportation and Storage 4.752% 3 .006% 2.167% 2.759% Computer and Related Services 7.558% 4.253% 3.592% 5.456% Table #Sa Annual Employment Levels in the Service Sector, Export-oriented sector Professional, Scientific and Technicai Services: 1987-1998 * (in 2000s)

Sub-sector 1987 1988 1989 1990 1991 1992 1993 1994 1 1995 1996 1997 1998 Prof., Scien.& 490 527 557 600 613 595 624 679 707 751 815 897 Tech.Serv.

Statisitcs Canada 1999, The Labour Force Survey (LFS),Matrix 3472, Databank Number D968586.

Table #Sb Percentage Changes in Annual Employment Levels in the Service Sector, Export- oriented sector Professional, Scientific and Technical Services: ProIW9 to present

% change kt. 1989- 1993 1994- 1998 1987-1998 Sub-Sectors 1987-1988 average annuai average annuai average annual pre-F TA ./. change ./. change % change Prof.. Scien. & Tech. Serv. 7.55 1% 2.955% 7.232% 5.709%

Table Ma Annuai Average Weekly Wage Earnings in the Service Sector, Export-oriented sector Architecture, Engineering and Other Scienti fic and Tec hnical Services: f 98ï-l997 (Canadian doüars)

Sub-sector 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 11997 Arch., Eng. & Other Sci. $526 $560 $615 $672 $712 $739 $763 $765 $798 $829 $848 & Tech. Serv.

Statistics Canada 1999, Survey of Emplo~ment,Payrolls and Hours (SEPH), Matrix 4291, Databank Number L65 8784.

Table #6b Percentage Changes in Annual Average Weekly Wage Eamings in the SeMce Sector, Export-oriented sector Architecture, Engineering and Other Scientific and Technical Services: Pre-1989 to present

./O change bet. 198%1993 19941997 1987- 1997 Sub-Sectors 1987-1988 average annuai average annuai average aanual pre- FTA % change % change % change Arch.. Eng. & Other Sci. & Tech. Serv. 6.463% 5.564% 3.496% 4.929%

6 No data was available for the 1998 Annual Average Weekly Wage Earnings of employees within the service sector. The Anaual Average Weekiy Wage Earnings data excludes self-employed workers. Chapter 5

Discussion

Throughout the service sector debate, there were two main areas of contention: jobs and wages. As previously stated in chapter 1, the main concern that proponents and opponents of fiee trade had with the service sector were the potential effects that tiee trade would have on jobs. Proponents argued that the service sector would see significant inmeases in jobs, while opponents argued that there would be demeases. In particular, opponents of fiee trade were concerned that women were going to be the 'big losers" as a result of free trade. On the other hand, proponents argued that women would see significant job gains in several senrice sector industries, such as insurance and banking, where jobs were hi&-paying. Tne issue of service sector wages was not as widely debated as the issue of jobs in the pre-fiee trade debate. The issue of wages became a more contentious issue with the proposal and implementation of NAFTA.

In order to determine the impacts on the service sector as a result of the implementation of the FTA and NAFTA, specific sub-sectors within the service sector were chosen as areas of study. These included: retail trade and wholesale trade (non- tradeable), transportation and warehousing [transportation and storage] and information and culture industries [cornputer and related services] (tradeable, import competing) and professional, scientific and technical services [architecture, engineering and other scientific and technical senices] (tradeable, export-oriented). Annual employment levels and annual average weekly wage eamings data was collected for the various sub-sectors of study within the service industry. The percentage changes for annual employment levels and average weekly wage earnings throughout various pre and pst free ûade periods were also detemiined. Prior to data collection, it was hypothesized that the non- tradeable sector would experience no significant change during the period of study, the tradeable, import competing sector would suffer and the tradeable, export-oriented sector benefit.

Major Findings

I. Non-tradeable sector

In the fiee trade debate, according to several proponents of fiee trade it was predicted that there would be job gains in the service sector. Sunder Magun, an analyst with the Economic Council of Canada estirnated that the FTA was expected to generate

182,000 jobs in services alone. For the non-tradeable sector in particular, he cstirnated that there would be 59,600 job gains in retail trade and 15,700 job gains in wholesale trade (Soto August 29, 1988, 9). Afier collecting annual employment level data for both retail trade and wholesale trade for the years 1987-1998, it was detennined that this prediction was clearly inaccurate.'

In 1993, Bruce Campbell, an opponent of free trade and a member of the

Canadian Centre for Policy Alternatives produced an actual impact study. In his study entitled: "Free Trade ": Destroyer of Jobs: An Examination of Canadian Job Loss

Under the FTA and NAFTA, Campbell asserted that during the period between December

1988 and Decernber 1992, many service industries suffered from job losses. He maintained that durùig this period, retail trade and wholaale trade lost 7,000 jobs (3.8%)

' See chapter 4 for 6ee trade data. (Campbell 1993, 3). AAer examining the annual employment level data, it was

determined that there were job Iosses in both retail trade and wholesale trade during this

period. Yet, many of these job losses were due in part to the Canadian recession in the

eariy 1990s.~

As previously stated, in the fkee trade debate, there were not many arguments

particularly made about wages in the service sector. There were no particula. predictions

made about wages in the non-tradeable sector nor were there any predicted or actual

impact studies that mentioned the non-tradeable sector specifically. After examining al1

of the data collected on the non-tradeable sector (retail trade and wholesale trade), it was

determined that throughout the period of study, overall this sector perfonned worse than

the tradeable sectors both in terms of jobs and wages and the predictions made by

opponents of fiee trade regarding this sector were more accurate than those made by

proponents.

II. Import competing secior

In the fTee trade debate, as previously stated, Sunder Ma* an analyst with the

Economic Council of Canada, predicted that the free trade deal was expected to generate

182,000 jobs in services alone. For the import competing sector, he predicted that there

wouid be 8,000 job gains in transportation and storage (Soto August 29, 1988,9). After

exarnining the data collected, it was clear that this prediction made by Magun was also

inaccurate. Opponents maintained that free trade in tradeable senice industries such as

culture and transportation as imported semices - would replace domestic services. The result would be a major job loss for women in these sectors (Vohanka 1988,99-100 as

' ibid cited in Calvert & Cameron). Maude Barlow, National Director of the Council of

Canadians and a staunch opponent of fiee trade, rnaintained that women in cornputer and

related services were losing several jobs due to the importation of computer services by

multinationals operating in Canada. She argued that with fiee trade in services, it would

be very difficult to stem this trend (Barlow June 3, 1986, AIS). Afk analyzing annual

employment level data for this sub-sector, it was determined that Maude Barlow was aiso

inaccurate in her predictions.

As for the wage debate, as previously stated, there were not many arguments set

forth. Most of the arguments made by proponents and opponents of free trade regarding

wages were very general. Throughout the period of study, there were service sector

studies that attempted to measure the predicted and actual impacts of free trade, yet none

of these studies mentioned the import competing sector in particular. AAer examinhg

the data wllected for the import competing sector, overall it was concluded this sector performed better than hypothesized. Surprisingly, computer and related seMces outperformed architecture, engineering and other scientific and technical services in the overall average annual percentage change for wages in the period 1987-1997. The average annual percentage change for 1987- 1997 was 5.456% for computer and related seMces and 4.929% for architecture, engineering, and other scientific and technical services.3

III. Export-oriènted se-

In the free trade debate, several opponents and proponents made their arguments regarding this sector. Sunder Magun, an analyst with the Economic Council of Canada estirnated that there would be 20,000 job gains in business services, including engineering and architectural consultants (Soto August 29, 1988, 9). To the contrary,

Me1 Watkins, an opponent of fkee traâe was unsure as to how jobs would be affected with the implementation of free trade. In 1988 he maintaineci,

To an extent unprecedented in existing trading arrangements, this agreement opens up the service sector: financial institutions, insurance, advertising, data processing, management services, and the like. The Reagan administration pus hed for this concession, believing that comparative advan tage in this sector lies with US. companies. The Mulroney government acquiesced, though what Iittle research has been done on the consequences for Canada indicate that the impact will be adverse (Watkins l988,36).

Again, there were no particular arguments set forth by proponents and opponents of fiee trade regaràing wages in the export-oriented sector, nor were there any studies that mentioned wages in particular. On the other hand, there were studies that mentioned jobs in the export-orientai sector in particular dwing the period of study. In his actual impact study, Canada Under Siege: Three Years Into the Free Trade Era ( 1992), Bruce

Campbell, of the Canadian Centre of Policy Alternatives asserted that employment in the key area of engineering and scientific services had fdlen 9% between 1989 and 1991

(Campbell 1992, 3). AAer examining the employment levels for professional, scientific and technical services, it was clear that this figure was inaccurate. The annual employment levels for this period were 557,000 in 1989,600,000 in 1990 and 6 13,000 in

1991.4 These figures do not indicate a 9% decrease in employment. In another actual impact study produced by Campbell in 1993, entitled "Free Trade '? Desîroyer of Jobs:

An Examination of Canadian Job Loss Under the FTA and NAFTA, Campbell asserted that there were job losses in business services. He maintaineâ that in the period between

ibid December 1988 and December 1992, business services shed 9,600 jobs (2%) with the

hardest hit being advertising which lost 10,800 jobs (34%) (Campbell 1993, 3). He also

asserted that financial services jobs remained almost flat, adding up just 8,400 jobs

( 1-8%) (Campbell 1993, 3). Al1 of these areas are included in professional, scientific and

technical service^.^ AAer exarnining the annual employment levels in this sector, it was

evident that there were job decreases between 1988 and 1992. For example in 1991 there

were 6 13,000 employees in professional, scienti fic and technical services, while there

were only 595,000 ernployees in 1992.~These figures indicated a significant decrease in

the nurnber of employees, yet it could not be determined as to how many employees were

lost in each of the individual areas that Campbell mentioned because al1 of the areas were

categorized within professional, scientific and technical services.

Overaii conclusions - -

After examining the arguments made by both proponents and opponents of fkee

trade, it was concluded that there was a definite lack of consensus on the issue of fiee

trade. This was also the case with the actual and impact studies conducted on the service

sector during the period of study. Each study said something completely difkent.

Overall, both proponents and opponents were inaccurate in their pre-ûee trade

predictions. It was concluded that after weighing the evidence, proponents of fiee trade

were more accurate in the predictions than the opponents of free trade although their

predictions were not fülly accurate. The actuai and impact studies made on the service

sector were also conflicting. Overall, afier examining the data collected, it was also

4 See data table Sa in chapter 4 for annual employment levels for the export-oriented sector. See chapter 3 for a definition of professional, scientific and technical services. ibid determined that the information given in both the predicted and actual impact studies was inaccurate. Overall, parts of the initial hypothesis proved to be correct. The export- onented sector did perform positively overall as many proponents of free trade predicted, yet it was not predicted that the import competing sector would perform as well as it did, nor was it predicted that the non-tradeable sector would perform worst of dl. To cite one example of how the irnport cornpethg sector performed better than expected, computer and related services, an import competing sub-sector outpedorrned architecture, engineering and other scientific and technical senices in the average annual percentage change for wages in the period 1987-1997.' As previously stated in chapter 4, afier analyzing al1 of the data, it was concluded that al1 of the magnitudes were relatively small compared to the exaggerated predictions made by both proponents and opponents during the f?ee trade debate and in the impact studies.

By looking at the data during the period of study, one can see that the overall transition during the fiee trade period was sometimes slow, but steady. in the various sectors of study, employment and wage figures do indicate some setbacks during the years of the Canadian recession, yet afler the recession, the figures began to rise again.

Ali of the data collected throughout this study is important in order to determine the overail impacts on the service sector. Yet, the final conclusions were determined by examining data for two major time periods: 1987- 1997 and 1987- 1 998. If one considers these figures aione, it can be concluded that overdl the service sector was not negatively affected as a result of fiee trade as many opponents of fiee trade predicted.

- -- - 7 See tables 4b and 6b for average annuai percentage changes for wages in the perd 1987-1997 for both computer and related services and architecture, engineering and other scientific and technical services. The Future of the Semce Sector and Free Trade

The majority of studies conducted on the impacts of fke trade have focused particularly on the manufacturing sector. To the contrary, this thesis has examined the impacts on Canadian jobs and wages in the service sector during the irnplementation of the FTA and NAFTA. This study was necessary for a variety of reasons. For one, there was a very limited amount of literature that attempted to measure the impacts of free trade on the service sector. Therefore, this sector needed to be examined more thoroughly. Most important of dl, there are a growing number of Canadians employed in the services industry, rather than in manufacturing. As previously stated in chapter 2, the service sector ernploys over 70% of Canadian workers and it is by far the largest component of Canada's economy in terms of wages and gross domestic product. indeed, trade in services is the fastest growing part of the Canada-U.S. commercial relationship

(Rosenberg 1994, 253). Considering al1 of these elements, it made very good sense to conduct a study on the senice sector.

Due to the limitations of this study and the vastness of the service sector, it was impossible to consider every sub-sector within the service industry. As previously stated in chapter 3, it was therefore necessary to choose certain sub-sectors for study. It would be interesting to see if the same results would occur if this study were to be conducted considering more sub-sectors within the service industry.

Free trade will continue to impact Canadian workers in the fùture in a variety of ways. Most recently, on Novernber 18, 1996, Prime Minister Jean Chrétien and President

Eduardo Frei signed the Canada-Chile Free Trade Agreement in Ottawa, Canada. This agreement was modeled after NAFTA. For services in particular, locks in Chile's open regulatory regime were implernented to ensure that Canadian services providers would continue to benefit fiom a transparent, largely barrier-fiee business environment. It was predicted that senice sectors such as wnsulting engineering, and mining, fore- and environmental enhancement services would benefit fiom this agreement

(www.aacb.com/news/~cfta.htm).~How will Canadian service sector jobs and wages be affected as a result of the Canada-Chile Free Trade Agreement? This question is also open for debate and study.

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Yazmine Watts was boni in 1976 in Detroit, Michigan. She graduated fiom the Leelanau School in 1994. From there she went on to Kalamazoo College where she obtained a Bachetor of Arts degree in both Political Science and French in 1998. She is currentiy a candidate for the Master's degree in Political Science at the University of Windsor. After she has hlfilled al1 of her requirements for the Master of Arts degree in Political Science, she will be pursuing a Doctor of Philosophy degree in Political Science at Western Michigan University in Kalamazoo, Michigan.